The paper envisages that whole classes of intermediary, such as custodians and CCPs, could become redundant, replaced by smart contracts. There is no likelihood of such an extreme revolution occurring any time soon: much more work is needed across a whole range of issues, including: speed and scaleability; confidentiality protections; developing common protocols; integrating cash and securities movements; and establishing regulatory and legal norms. In many cases, reform to outmoded business processes will need to precede any application of the technology itself. But there is clearly scope for less ambitious but still potentially transformational applications in specific markets, not least those where current infrastructure is less well developed. A key challenge for incumbent firms is whether to take on competition with challenger firms headon, or partner with them to develop and implement the most promising forms of technology internally. But doing neither is a risky approach. The final driver for change is regulation, which since the financial crisis has greatly increased the focus on centralised post-trade infrastructure as a means of promoting transparency and reducing system-wide risk. Amongst other things, banks and other financial intermediaries have been required to hold more high-quality collateral and be ready to mobilise rapidly across a wide range of businesses in response to margin calls. They have faced much stronger incentives to use centralised clearing and avoid settlement fails. And they have faced the need to support an increasing range of account types and reporting requirements. In turn, supervisors have increasingly expected infrastructure operators to act as systemic risk managers.

The revised policies also aimed to address implementation issues faced by both the reporting institutions and the supervisors as well as to incorporate FATF requirements under the revised standards. To ensure consistency of AML/CFT policies across the sectors, the revision was carried out jointly with other financial supervisors such as the Labuan Financial Services Authority and the Securities Commission. Extensive consultations and engagements were undertaken with the industry players both during pre and post issuance of the policies. The consultations provided a broad range of opinions and support. Whilst majority of responses were supporting a risk-based approach, concerns were also raised on the cost and burden of compliance. Bank Negara Malaysia recognises that the cost of implementing the Customer Due Diligence under the risk-based approach may be high at the early stage of implementation but the establishment of robust risk framework that commensurate with the risks of your institutions will minimise the institutions’ reputational risk and would also lower the overall costs in the long-run given the ability for reporting institutions to focus resources to the right area. Governance and risk culture Let’s now turn to governance and risk culture. Governance refers to actions, process, traditions and institutions by which authority is exercised and decision are taken and implemented. A good governance is, therefore, a mixture of legislation, non-legislative codes, self-regulation and best practices, structure, culture and management and board competency. If we take a step back and reflect, we will notice that risk governance is woven through the risk management framework.