Zeti Akhtar Aziz: Enhancing corporate governance practices in the Malaysian financial sector Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the official launch of the Financial Institutions’ Directors Education (FIDE) Forum, Sasana Kijang, Bank Negara Malaysia, Kuala Lumpur, 12 June 2012. *  *  *  It is my great pleasure to be here this morning at the launch of the Financial Institutions’ Directors Education (FIDE) Forum. The establishment of this Forum, an initiative by the founding directors of the FIDE program will contribute to further the efforts to enhance corporate governance practices in the Malaysian financial sector. Many of you have made invaluable contributions to the conception and development of the FIDE program and its ongoing refinement. The program is not only unique and highly effective, but it is delivering palpable change and contributing to higher standards of corporate governance in our financial industry. This in turn is supporting stronger, and more resilient financial institutions. Following the recent global financial crisis, corporate governance practices in the financial industry have come under significant scrutiny. There has been increased pressure on the management, boards of financial institutions and on regulators to significantly improve the governance practices in the financial industry notably on the incentive systems, accountability and controls. The problems that led to the build-up to this however, are not new.

In many respects, the financial sector in Malaysia has progressed ahead of current developments. A set of governance principles and rules were introduced in the early part of this recent decade. This included the parameters for sound practices with respect to risk-aligned compensations – an issue that has been a focus of the current global regulatory reforms. This was followed closely by the implementation of an improved risk-based supervisory approach which places board and senior management oversight at the centre of an effective control environment within financial institutions. A more rigorous process for assessing individuals nominated to assume the roles of director, chairman and chief executive of financial institutions have also been introduced. As part of the efforts to bring about behavioural and cultural changes to strengthen the governance practices in the financial industry, FIDE was developed and introduced in 2008. We have been encouraged by the resulting improvements observed in governance and risk management practices among financial institutions in Malaysia. Our supervisory oversight has shown that directors have exercised a more active role in ensuring effective alignment and implementation of risk policies, business strategy and capital management. The quality of engagement between boards and management has also improved substantially in particular, on major strategic decisions and risk developments. Our supervisory engagements with boards have also benefited from the issues raised on areas of concern and material developments. There has also been increased efforts to strengthen the mix of skills, experience and expertise of the Board composition to improve the overall effectiveness of boards.