It is crucial to ensure, however, that this does not result in unchecked increases in risk appetite or compromises the quality of risk management practices. What was once a “black swan” event has increasingly become more common due to the high inter-linkages between international economies. As such, we need to be vigilant and ensure all potential risks are addressed and comprehensive risk management measures are adopted, both at the macro and micro levels of the economy. Regulatory reforms in line with risk management Let me turn now to the regulatory reforms in line with the risk management practices. The global financial crisis has exposed weaknesses in the existing international financial architecture and highlighted the fragmentation of regulatory rules across different jurisdictions. It has been a wake-up call for the world to come together to implement regulatory reforms to strengthen the foundations of financial stability and address the issues in the international financial system. For Malaysia, the recent global developments will not alter much the fundamental tenets of Bank Negara Malaysia’s approach to the regulation and supervision of the financial institutions. During the past decade, we have developed and implemented our Risk Based Supervisory Framework and our Risk Based Capital regime. Under these benchmarks, regulatory capital requirements and Bank Negara’s expectations in terms of governance and risk management are already well aligned with the specific risk profiles of individual institutions. The risk assessment and supervision of individual institutions are also further complemented with macro-prudential assessments to monitor the aggregation of risks in the financial system.

As Malaysia moves into the next stage of economic development, by transforming from a mainly production-based economy to a more innovation-driven and knowledge-based economy, the financial services sector will play a prominent role in this evolution. In support of this transformation, Bank Negara Malaysia is developing a new blueprint for the financial services sector. This blueprint will chart the next phase of the development of the financial sector, position the financial sector as one of the main catalysts for the transformation of the Malaysian economy and ensure our economy remains robust and resilient to respond to any emerging risks. Risk management for insurance institutions It is expected that the financial sector in Malaysia will expand and become more complex and inter-connected over time. Therefore, the corporate governance and risk management practices in insurance institutions will also need to evolve to keep pace with the fastchanging environment. It is a fact that institutions which performed better during the crisis were consistently differentiated by more robust governance and risk management practices. According to a recent Towers Perrin survey of major U.S. corporations, failure in risk management has been cited to be the key characteristic of financial institutions that suffered large losses during the global financial crisis. Thus, improving risk management was the top priority of CFOs in reaction to the global financial crisis. Prioritizing risk management is even more important for insurance companies. This is due to the fact the core activity of insurance involves risk-taking and risk-transfer, and that insurance risks are usually long-tailed.