It is my pleasure to welcome you to this year's dialogue session between Bank Negara Malaysia and the insurance and takaful industries to discuss the challenges and opportunities the changing environment presents. A year ago, the focus of the discussions was on the strategic issues facing the industry as we transitioned towards a more competitive market environment. The emphasis was on the expectations on the industry to deliver a fair proposition to consumers, its relevance in the changing environment and its readiness in terms of capacity, and to support and sustain a successful strategy for growth. While the theme for this dialogue is to focus on how the industry should position itself to meet the new challenges, it will specifically address the transition towards a risk-based and a more self-regulated market conduct regime, and the development of a dual financial system for the insurance and takaful industry. This year, the dialogue has been jointly organised by the industry with the Bank. The industry's active involvement will be important in making this important event a success. This dialogue will provide an opportunity for deliberations on the strategic issues confronting the industry in the changing environment from the different perspectives between the industry and Bank Negara Malaysia . At this juncture, let me take this opportunity to share with you some of the recent economic and financial developments and the major policy initiatives by Bank Negara Malaysia .

Under the new regulatory landscape, the relationship between the Bank and the regulated entities, and thus, the supervisory expectations, will change, as the prudential framework evolves towards a predominantly principle-based and risk-based regulatory approach. There will be a greater emphasis on corporate governance, integrity and transparency as the foundations for industry players so as to maintain investor confidence and public trust. Under this environment, it is also envisaged that insurers, individually or collectively, will play a bigger role in developing market conduct standards, fostering fair market practices and improving financial literacy among consumers. Moving forward, as market discipline improves, and insurers and takaful operators are better positioned to implement selfregulation, further deregulation can be expected. A differentiated regulatory approach will increasingly be adopted, where companies that exhibit strong corporate governance and risk management practices will be given greater regulatory flexibility. BIS Review 76/2006  3  Commensurate with the diversity and complexity of products and services, the continuous upgrading of risk management practices, with improvements in governance standards and enhancements of information management systems will be critical. With the impending implementation of the risk-based capital framework, the responsibility for the implementation of sound risk management and market conduct governance, as well as assessment of risks and management of the financial condition of an insurer, will rest increasingly with the Board of Directors and Senior Management of the insurers. Integral to the increased flexibility provided under the new regulatory landscape is the highest standards of integrity and ethics in the industry.