Key Message 3 – Enabling regulatory and policy environment to support DFIs in realising their full potential My third and last point relates to the regulatory framework to support DFIs in realising their full potential. An appropriate regulatory and policy ecosystem is crucial to nurture a culture of innovation that will support the achievement of development impact within the DFIs. Bank Negara Malaysia is committed to cultivate this through the application of proportionality in our regulations. The concept of proportionality is related to the application of differentiated prudential requirements for institutions of varying sizes, systemic impact and complexity in order to avoid excessive compliance costs. These costs may be burdensome and disproportionately high to smaller institutions. The application of proportionality can take the form of reduced reporting burdens or simplified rules for some institutions. Proportionality however, does not necessarily mean less stringent regulations. For some institutions, it may mean lower leverage, additional safeguards and prudential measures. Thus, proportionality entails an adjustment to the complexity of the rules taking into account the risks and externalities posed by financial institutions. It is important to understand that this does not necessarily result in a lower degree of stringency. This practice is not entirely new as we have been practising proportionality in regulating DFIs. This is reflected in prudential regulations on capital and liquidity which are applied to DFIs as well as corporate governance and financial reporting requirements. Moving forward, this application of proportionality will be further enhanced to reflect developmental outcomes.

On this note, I would also like to mention that sustainable and impactful financial solutions are not reserved exclusively for DFIs. The whole financial sector has a professional and civic responsibility to advance the sustainability and inclusion agenda. This responsibility includes upholding the fiduciary duty of financial institutions to preserve the trust, integrity and confidence in the financial system. By being responsible citizens, financial institutions will go a long way to repair the trust deficit between the industry and the public brought about by bank failures and the numerous cases of market misconduct, manipulation and scandals. 3/5  BIS central bankers' speeches  To this end, Bank Negara Malaysia has pioneered the measurement of development impact to complement financial performance by implementing the Value-based Intermediation (VBI) Scorecard with selected banks. The VBI scorecard contains components of qualitative and quantitative measures of impact to cultivate an impact-driven mindset and drive improvement within the banking industry. We hope that this will be a stepping stone to enhance the contribution of the financial sector to public welfare. In summary, as the old adage correctly points out, “If you can’t measure it, you can’t improve it.” Hence, the accountability and effectiveness of DFIs need to be measured through a robust, structured and comprehensive performance framework. This two-day Forum is dedicated towards realising this outcome. Challenges in measuring performance and collecting credible data that will best quantify the development impact will be discussed to identify workable solutions drawing from the experience of other leading international DFIs.