For a period, our banks were also caught up in the global de-risking phenomenon which saw banking relationships with legitimate businesses indiscriminately terminated across the board. Money changers, remittance service providers and even well-established and managed nongovernment organisations, which were providing legitimate services to the community, had their accounts unilaterally closed without any effort made to establish legitimacy. Another example is in the area of responsible financing. Despite broad flexibility provided on income verifications, some banks were initially quick to reject loan applications from borrowers based on a set of very narrowly defined documents that were accepted to prove incomes. This largely excluded non-salaried individuals from accessing loans. This was only later reviewed by banks to accept other forms of documentation and borrower engagements to demonstrate a borrower’s ability to repay. In certain circumstances, it is entirely appropriate for a compliance function to draw a clear line in the sand, where further risks should not be taken. For example, where there are reasons to suspect that firms or individuals may be involved in illegal activity, banks must not deal with such parties and must work with the authorities to limit public harm. Despite being a first line of defence against illegal activities through banking relationships, banks have often been too slow to react. This has resulted in heightened risks of losses to investors, not to mention substantial damage to the reputation of the banking industry at large.

The role of compliance in supporting the integrity of regulatory frameworks; ii The larger social and economic consequences that can arise from compliance lapses; and iii. The impact on public confidence and trust in an environment where financial intermediation is no longer the exclusive domain of banks. 1/5  BIS central bankers' speeches  Regulation, particularly for banks, has become significantly more complex as banks grow in size and sophistication. In the face of these growing complexities, global standard setters continue to develop standards that can best manage this issue. In general, Bank Negara Malaysia has been supportive of moves to make regulation simpler and less costly. Even so, some complexity in regulation is inevitable due to rapid advancements in the business of banking, compounded by the process of globalisation and changes in the banks’ operating landscape and interactions with other components of the financial system. Continuous regulatory changes are necessary and will be the norm as efforts are continuously taken to safeguard financial stability. If you observed carefully over the last few years, it is not just banking rules that are becoming more complex. Developments in financial reporting standards are adding to this complexity as well, in ways that we may not even fully contemplate yet. Regulation has also evolved from detailed prescriptions to “standards”, which focus on principles and outcomes. With this evolution, substantial value judgement and discretion are required in such an approach. Banks need to determine and decide on how to reflect these standards in their day-to-day operations.