While there is still some time before the first reporting period under IFRS 17, it would be a grave mistake to leave things too late given the scope and enormity of the issues that that need to be addressed. This is compounded by the prospect that insurers that are late to the game are likely to face an acute skills shortage as first movers draw down a limited pool of qualified actuaries, IT specialists, software and systems vendors and technical consultants. In Malaysia, early steps have been taken by Bank Negara to engage the industry on the development of broad implementation plans. That said, the granularity of the plans and implementation progress remains uneven across insurers and takaful operators. Recognising the complexity and wide-ranging implications of the new standards, several industry technical working groups have been established in coordination with the Actuarial Society of Malaysia to examine key issues and provide recommendations on the implementation of IFRS 17. We have also conducted a first preliminary round of quantitative testing, which was intended to help insurance companies gauge the potential impact of the new standards on their resources, systems and reported performance. A second, more comprehensive quantitative testing exercise has also been planned for the third quarter of this year. Going forward, the Bank will be intensifying our monitoring and engagements with insurers and takaful operators on their preparations in the run up to 2021. Conclusion Looking ahead, a more optimistic outlook for the global economy will support favourable conditions for a smooth transition to IFRS 17.

It is now apparent that the level and quality of pre crisis capital in the banking system has not been adequate for the types of losses that have been experienced and that are expected to materialize from the broader economic downturn. Larger capital and liquidity buffers are necessary especially for trading activities. In the Basel framework we have recently taken decisions which will lead to a much more robust and resilient banking system in the future, with both a stronger capital and liquidity base. The challenge, now, is to calibrate and phase in the new framework in a way that does not impede the recovery and does not contradict our macroeconomic objectives. In the long run, we want stronger balance sheets in the banking system. In the immediate future, disorderly deleveraging is one of the main downside risks to the recovery process. Striking the right balance, in our actions and in our communication, is important, but difficult. The top-down assessment underway in the context of the Basel committee and the FSB is trying to reach that balance. The broader point here is that the proposed reforms can have significant macroeconomic consequences and these should be factored in when designing and implementing them. While the crisis has clearly had global ramifications, its impact on financial systems was not uniform across the world. Differences in financial structures do matter. Banks remain central in our financial systems: this is especially true for continental Europe where they are responsible for more than 80% of financial intermediation.