The Strategic Alliance Agreement with the Deposit Insurer provides for a structured collaboration between the Bank and MDIC to share information on key issues and developments to facilitate the operations of MDIC. Both formal and informal information exchange mechanisms have been put in place to facilitate timely data and information exchange that can be leveraged upon to support and enable MDIC to fulfil its mandated role. This has proven to be effective in minimising duplication of efforts. These information exchanges include cooperation and consultations on supervisory and prudential regulations where both agencies are involved from the early planning stage, particularly in circumstances in which the initiatives impact the functions of the respective institutions. Consumer protection framework To complement the deposit insurance system, Bank Negara Malaysia has also put in place a comprehensive consumer protection framework that covers financial education, fair treatment of consumers, avenues for redress, distress management and rehabilitation as well as advisory services. These include having in place the Financial Mediation Bureau to ensure that consumers of financial services that are under the purview of the Central Bank have recourse to a fair and impartial dispute resolution mechanism. The establishment of the Credit Counselling and Debt Management Agency provides individuals with credit counselling and assistance in restructuring of debts; and the establishment of the Bank Negara Malaysia LINK and BNMTELELINK forms an integrated customer service centre for members of the public and small and medium sized enterprise on matters relating to services provided in the financial sector.

Moreover, the market preoccupation with short-term stock price, rather than long-term creditworthiness also presents potential risks to financial stability. Notwithstanding these challenges, several recent positive developments in emerging economies have augured well for market discipline to have a more effective role in reinforcing sound governance. In particular, the development of financial markets have resulted in more efficient markets with wide options for investors to exert discipline. The adoption of international financial reporting standards, efforts to strengthen auditor independence as well as financial capability initiatives will also reinforce market-based discipline going forward. All of these initiatives will improve the prospects for financial stability by preventing problems from occurring at the level of individual institutions. However, the recent events in the international financial environment have demonstrated the increasing complexity of banking activities which has raised the broader challenges for financial regulation and the design of safety nets in the context of managing systemic risk. Regulators have begun to carefully consider the need to re-calibrate current regulatory approaches to appropriately address risks to the financial system stemming from large and complex institutions that are increasingly engaged in non-traditional activities. This has, in turn, placed new demands on financial regulators as well as for institutions to develop a deeper understanding of the interlinkages between the financial system and the economy, and in particular, the macroeconomic transmission of financial risk.