The Singapore dollar has been included as one of eight settlement currencies in the Continuous Linked Settlement (CLS) system - a global initiative aimed at eliminating foreign exchange settlement risk arising from time zone differences. Going forward, the outlook for the other segments of the financial sector has improved. The stock market has rebounded with daily transactions nearly tripling in Q2, compared to Q1. With the expected pick-up in domestic and regional economic activity in H2 2003, we are also likely to see further improvement in commercial banking. The financial sector is expected to post a small positive growth this year, following the 4.8 per cent contraction in 2002. BIS Review 33/2003  1  Enhancing supervisory framework for sound financial sector On the supervisory and regulatory front, MAS continued its efforts to move away from a prescriptive, rule-based approach to a more flexible, risk-based approach. This entailed strengthening risk-based and disclosure-based regulatory frameworks, enhancing corporate governance standards to foster better risk management on the part of institutions, and empowering consumers to make better informed investment decisions. Let me touch on key initiatives in each of these areas. An important step towards a disclosure-based regime was the full implementation last year of the Securities and Futures Act and Financial Advisers Act. MAS will continue to refine the regulatory framework for capital markets, taking into account industry feedback. In the area of risk-based supervision, we implemented last year the new Liquidity Supervision Framework for banks.

Several banks that have better risk management systems and processes have been allowed to lower their minimum liquid asset requirements from the existing 18 per cent on the basis of their liquidity risk profile and liquidity risk management capabilities. Similarly, in the area of capital adequacy, we are currently developing a framework for setting individual bank-specific requirements according to their risk profile and risk management capabilities as part of our ongoing review of the overall capital adequacy framework. For securities and futures intermediaries, we introduced a risk-based capital framework last year. For insurance companies, we tested such a framework last year and are working towards implementation in 2004. Shifting from a rule-based to a risk-based approach requires MAS to sharpen its supervisory capabilities. It involves assessing key risks faced by individual financial institutions and their ability to manage these risks. We are building more comprehensive risk profiles of individual institutions, leveraging on technology and better information collection. Primary responsibility for risk management rests with the Board and senior management of the institutions themselves. This is why strengthening corporate governance standards in financial institutions has been a key priority at MAS for several years. Building on earlier initiatives, we have issued a consultation paper, proposing to set higher standards of financial transparency and corporate governance for locally-incorporated banks and direct insurers. We have proposed making it mandatory for the roles of the Chairman and CEO to be separated, and strengthening the independence of boards of directors from substantial shareholders.