Put another way, similar activities that involve identical risk issues should be regulated on an equal basis to avoid tilting the playing field. Failure to do so will result in regulatory arbitrage and cause activities to migrate towards looser controls. In Singapore, the regulators for banking, securities and insurance activities are consolidated in MAS. Specific to the capital market, we have integrated our legislation for the securities and futures industries, and harmonised our regulation of the financial advisory business to support the cross-selling of products. What is critical however, is not how regulatory responsibility is divided or consolidated into one or more agencies. The overriding objective is equitable treatment and consistency in the approach to the measurement and management of risk. Capital requirements illustrate this most clearly. Most regulatory models have moved away from setting fixed minimum capital for regulated activities. In banks as for capital market intermediaries, regulators are adopting and refining the risk based regulatory approach. Where risks take on a similar profile therefore, the capital charges should be aligned based on a consistent principle. This is so even as the risk management regime in the banking, securities and insurance sectors retains some distinctive features that recognises the differences in these businesses. Legislative initiatives in Singapore In Singapore, at the heart of the regulatory framework for the capital markets is the Securities and Futures Act (“SFA”) which was enacted in September last year. The SFA is an omnibus Act that sets out the regulatory framework for the capital market.

•  In these cases, the “certainty equivalence principle” (Poole, 1970) calls for policy to respond to the best estimate of variables in the same way that it would to perfectly measured variables, were they to be observable. b. Be cautious  •  This is an approach popularised by Brainard: “parametric” uncertainty gives grounds for addressing economic disturbances cautiously, supporting a gradualist approach (Brainard, 1967). Furthermore, transmission uncertainty related to the fact that, according to Milton Friedman, “monetary policy works with long and variable lags”, cautions against trying to “fine-tune” the economy through monetary policy intervention. •  Moreover, a central bank should not adjust policy simply because the market expects it 1 : -  the behaviour of financial markets is mimetic whilst central banks are very cautious;  -  markets are sensitive to speculative bubbles while central bankers focus on fundamentals;  -  markets are short-term oriented whereas central banks are medium- to long-term oriented. •  However, erroneous decisions may be made in private markets if monetary policy does not match the policy anticipated. This requires the central bank to be intertemporally consistent. A usual policy guideline in this context is to gradually adjust the policy rate. •  Thus, from a practical point of view, gradualism has many advantages: -  it reduces the risk of having to quickly reverse policy decisions;  -  it reduces the probability of financial market disruptions;  -  it is particularly beneficial in the face of major risks.