It is against this background that financial sector supervision should also be directed at financial institutions that pose the greatest risks, such as, non-bank financial institutions. In this regard, the adoption of the risk-based approach allows the supervisor to devote more supervisory effort to those areas that have a high-risk profile. This therefore, entails that supervisory authorities should shift their focus from the traditional Capital, Assets, Management, Earnings, Liquidity, and interest rate Sensitivity (CAMELS) approach to a more risk-based approach. A risk-based supervisory approach would involve the identification of key risks, the level of these risks and the key risk areas. After identifying these risk factors, a comprehensive supervisory framework with appropriate resources is then assembled to mitigate the risks. The amount of resources required is dependent on the level and intensity of the perceived risk. However, suffice to mention that this does not mean that the risk-based supervisory approach ignores the strengths of the CAMELS approach, but rather addresses the weaknesses by putting more emphasis and resources on areas with potentially higher risk. Ladies and Gentlemen As many of us are aware, financial sector operations have become complex nowadays, as they entail, among others, managing financial, market and operational risks, which depend, to a large extent, on public confidence in the financial system. In this regard, proper supervision is critical to minimising risks as well as ensuring the stability of the financial sector and engendering public confidence.

For instance, banks and insurance companies are searching for growth through the diversification of their activities in such a way that they can no longer be considered as homogeneous institutions falling within the scope of one economic sector and one supervisory system! These conglomerates aim to exploit the synergies that exist among banking, insurance and investment. This market evolution towards huge financial conglomerates, with integrated product development is slowly blurring the traditional boundaries between banks and non-bank financial institutions, on the one hand, and the supervision of these institutions, on the other. In spite of these trends in the international financial markets, regrettably, supervisory systems, in our sub-region, are mainly structured along the traditional boundaries demarcating banks, insurance companies, investment and micro-finance institutions. These integration changes represent major challenges to the supervisors of the different sectors, especially as the financial institutions become more complex in their structures and operations. BIS Review 12/2005  1  Notwithstanding the foregoing, the sluggish growth of our economies in the sub-region has also created a difficult operating environment for financial institutions, especially banks. As a result, this has contributed to the mushrooming of non-bank financial institutions, such as, micro-finance. It is a fact that the financial sector in our sub-region is dominated by commercial banks, which have continued to service only a small section of the population. The majority of the people are denied access, largely, due to numerous reasons, including perceived risks, high costs involved in dealing in small transactions and the inability to provide marketable collateral for loans.