Consequently, issues relating to information sharing, allocation of powers, responsibilities, accountability and coordination among the various agencies must be clearly and explicitly addressed at the outset. The legislative mandates would need to provide clear roles and responsibilities for each relevant authority. This will form the foundation for the adoption of an integrated and coordinated approach. The need for such coordinated action becomes particularly important in conditions of an imminent financial crisis. Having in place a crisis management framework would allow for its prompt and effective implementation. The issues relating to the effective management of the inter-relationships between the safety net participants were brought to the forefront recently in the United Kingdom, testing the framework in which the functions of lender of the last resort and the supervisory function are placed in separate entities. In comparison, when a single agent such as the central bank is entrusted with these respective functions, the interrelationship issue, as well as potential conflicts and trade-offs become internal and would be resolved across the organisation. It would nevertheless still need to rely on an adequate accountability regime among the respective departments or divisions that are responsible for each mandate. Malaysia's own experience during the Asian financial crisis exactly ten years ago allowed the Central Bank as a single regulator, to promptly respond to the liquidity and solvency issues that were confronting the financial system. The preemptive action that was supported by a comprehensive resolution programme significantly reduced the cost of the crisis on the financial system and the overall economy.

Bank Negara Malaysia's approach to the financial regulation and supervision has similarly evolved to achieve a more robust regime that emphasises three key dimensions: first, creating a strong risk management culture that overlays the operations of banking institutions; second, facilitating market-led adjustments that will allow the industry to evolve in response to market and technological; and third, ensuring mutually consistent prudential policies across the financial sector. Underpinning this approach has been a more pronounced shift towards principle-based regulations. Increasingly, regulations have focused less on prescriptive rules, and more on establishing broad parameters for sound financial and business practices that leave substantial flexibility for banks to apply the principles in the manner most appropriate to their specific circumstances. Of importance, has been the creation of appropriate incentives within the system to counteract potential market distortions that could undermine financial stability. The differentiated regulatory framework under which stronger banking institutions would have substantially greater operating flexibility and a lower level of supervisory intervention, for example, provides a powerful competitive incentive for the adoption of sound risk management practices. 2  BIS Review 130/2007  While enhanced bank regulatory and supervisory functions have had a direct and significant impact on improved risk management by banking institutions, the primary responsibility for sound institutional risk management will continue to rest with the boards and senior management of banks. It is the boards, and not supervisors, that are principally responsible for the performance of banks and for their financial strength.