Such a process is undeniably messier, less predictable and possibly harder to explain in a consistent way. But it is also precisely these very characteristics that make it much more relevant in the world that we live in today. 3/5  BIS central bankers' speeches  At the Bank, our work on proportionate regulation and risk culture aims to support this evolution. For example, the innovation sandbox allows financial institutions greater regulatory room to test innovations within a controlled environment and learn from emerging experience. We are also examining options to better tailor the regulatory framework to the size and complexity of financial institutions. And we are directing greater supervisory focus on an institution’s prevailing risk culture to determine the degree of supervisory intensity that we apply to individual institutions. We expect these developments to pave the way for more constructive dialogue with institutions to achieve regulatory frameworks that will deliver a sensible balance and greater synergies between risk and innovation. Building resilience The third important shift that I want to mention concerns a stronger focus of innovative risk management approaches on building resilience, in addition to simply averting or reducing risks. In the area of network security, organisations are increasingly adopting an “assume breach” paradigm where they operate on the assumption that a risk event has already occurred. In the financial world, reverse stress testing is being incorporated into risk management approaches to identify the scenarios that would break an institution.

This is not only misguided; it misses a valuable opportunity for organisations to design operations in a way that would enhance an organisation’s ability to reinvent itself as circumstances change, and achieve wider options for recovery in a business disruption scenario. At its most basic level, building resilience is about helping organisations better understand their operational and financial interdependencies and how this can affect their ability to recover and respond to disruption and change. This not only assures an organisation’s own survival, but enhances its prospects for creating value. Development priorities for insurance and takaful In speaking on innovative risk management, I would be remiss not to touch on the Bank’s development priorities in the Malaysian insurance and takaful sector to support risk management by businesses. Let me mention some of the ongoing initiatives that are relevant to those in this 4/5  BIS central bankers' speeches  room today: · We are raising professional standards for insurance brokers to improve the quality of advice and risk information provided to risk and insurance managers; · We are reviewing existing industry arrangements to further develop domestic underwriting capacity for large and specialised risks; · We are progressing a review of capital requirements to further strengthen the resilience of insurers and takaful operators to support more complex and diverse risks; and · We will continue to facilitate access to the domestic insurance market by strong global insurers that can bring new and innovative risk solutions to meet the needs of Malaysian businesses and reduce insurance outflows.