The new legislation has also improved the ability of the Bank to respond to financial stability risks that can originate from shadow banking activities, including to issue orders requiring such intermediaries to address any risk identified which could threaten financial stability. A Financial Stability Executive Committee chaired by the Governor, which includes the Treasury Secretary, heads of key regulatory authorities and independent parties as its members may impose macro-prudential measures on these non-bank financial institutions to prevent the build-up of financial imbalances from this sector. With these necessary preconditions firmly in place, Malaysia embarked on a gradual and sequenced approach towards liberalisation and internationalisation. In 2005, Malaysia migrated to a flexible exchange rate regime at the very same moment that China did. It has provided Malaysia with greater flexibility to adjust to changing structural conditions in the region and the global economy. This has been reinforced by the progressive liberalisation of foreign exchange administration rules which have enhanced business competitiveness and facilitated larger volumes of trade and foreign direct investment flows. This has generated greater two way flows in the foreign exchange market and thus promoted orderly conditions in an environment of highly volatile capital flows. In the financial sector new licences and foreign equity interests in the banking and insurance sectors have now moved beyond the prescription of hard limits, to assessments based on the prudential and in the best interest of Malaysia criteria. In building a stable and resilient financial system, the Central Bank has accorded greater emphasis on financial inclusion.

This market has since been liberalised to allow foreign corporations to raise funding in both domestic and foreign currency. In these recent few years, there has been a number of successful Reminbi bond issuance from our market to finance investment opportunities in China. Various other key financial infrastructures were also put in place to enhance the efficient functioning of the intermediation process of the overall financial system. This included the infrastructure to support robust payment and settlement systems. In 2012, we introduced onshore settlement of Reminbi transactions in our real time gross settlement system RENTAS via a local onshore settlement institution. As part of the development of our domestic financial infrastructure the Malaysia Deposit Insurance Corporation was establish to provide a comprehensive deposit insurance and insurance benefit system for the banking and insurance sector. This institution not only imposes discipline for risk management by the financial institutions through the imposition of differential premiums based on the risk profile  BIS central bankers’ speeches  1  of institutions, but it also is the resolution authority in the event of failure of a financial institution. Underpinning the financial sector growth was also the development of a more robust surveillance, regulatory and supervisory framework. As the Malaysian financial system evolved to become more complex, sophisticated and diversified, the regulatory and supervisory approach has correspondingly evolved from detailed and prescriptive rules to a risk-based approach that combined greater supervisory judgment and intensity with highlevel principles of sound practice.