Four of the top five brokers in the world have their regional hubs in Singapore. Today, brokers are not just intermediaries, but also high-value service providers who drive innovation and collaboration in the industry. •  Many brokers provide a wide range of risk management services. These include dynamic financial analysis, risk management and actuarial consultancy, portfolio and financial modelling, and catastrophe modelling. •  Some brokers have also begun to tap alternative risk transfer solutions to manage more complex and larger risk exposures and liabilities. We are keen to encourage brokers to use Singapore not just as a placement centre, but also as a centre of excellence for innovation. •  A good example of this is Aon, which recently established its Analytics and Innovation Center in Singapore to provide analytics solutions to the Group’s business units on a global basis. Second, encouraging a subscription market. To underwrite large and complex risks, insurers need to collaborate. Risk sharing enables market participants to diversify their portfolios. We want to promote a true subscription market, where insurers not only share risks, but also expertise. The subscription concept leverages both the deep expertise of the lead insurer and the supporting capacity of the other insurers to cover a variety of large and complex risks. 4  BIS central bankers’ speeches  Such deep collaboration requires contract certainty. Contract certainty ensures the finalisation of terms and conditions of the policy prior to inception of risk and therefore, serves to minimise ambiguity and disputes over claim and coverage.

Why didn’t the markets and clearing institutions react to the large build-up of risk? And why didn’t the lenders adjust their margin calls to correspond to the risk concentration? Better disclosure of Amaranth’s risk profile, from the authorities, the markets, the clearing institutions and individual lenders would probably have increased the chance of detecting the risk positions being built up. Conclusion New financial crises will occur and hedge funds, which have become an integral part of the modern financial markets, will probably be involved. The large capital flow to the sector has meant, not unexpectedly, that profitability has declined and it is not unreasonable to expect that a number of funds will consequently be forced to close down after more or less substantial losses. However, the advantages of the hedge funds’ operations exceed the risks from a welfare perspective. The Riksbank’s view as regards further regulation is that the focus should be on the hedge funds' counterparties - particularly the systemically-important banks - being able to manage their risks. Improving the banks’ risk management with regard to hedge funds has been the objective of a number of initiatives by the Basel Committee on Banking Supervision and other organisations ever since the LTCM crisis in 1998. From a stability point of view, the central issue is that the systemically-important banks should manage their counterparty exposures correctly – take sufficient collateral, have appropriate limits and be capable of managing potential liquidity problems. The arguments for further regulation of hedge funds are in this context weak.