This flexibility has been accompanied by fundamental changes in the approach to supervision that has shifted from a predominantly compliance-based approach, to one that focuses on an assessment of the risk-taking activities of an institution and the effectiveness of the control functions that are in place within the institution to manage the risks. The supervisory tools have also been expanded to include more forward-looking assessments of the risks to financial stability, supported by more dynamic stress testing approaches and enhanced surveillance systems. To a large extent, the preconditions for the shift to principle-based approach to regulation have been strengthened through capacity building measures that have been pursued in the period immediately following the Asian financial crisis. The development of the Financial Sector Masterplan which was released in 2001 is a blueprint not only for comprehensive financial sector reforms, but also provided the framework and strategies for the modernisation of our financial system. The financial safety net was also strengthened with the introduction of a comprehensive deposit insurance system and the establishment of institutions to assist consumers in managing their debt and resolving disputes with financial institutions. These measures have contributed towards maintaining confidence in the financial system. The crisis: a defining moment for the bank In the 1990s, it became evident for emerging economies that new challenges to stability arising from the international dimensions of financial activity had emerged. In particular, highly volatile and potentially destabilising capital flows had become a dominant feature of the international financial environment.

The acceleration of the nation's migration to the more efficient electronic payments continues to be an important agenda of the Central Bank. Complementing institution building has also included the support given to the development of talent in the financial services industry. The growth of the financial sector cannot be achieved without adequate attention to the development of the professional requirements of the financial services industry. In the recent two decades, a comprehensive Islamic financial system has also evolved in Malaysia, including the institutions, markets and supporting legal, regulatory and supervisory framework. The Islamic financial system now offers the full breadth and depth of Islamic financial services. Malaysia is the host to the secretariat for the Islamic Financial Services Board in Kuala Lumpur that sets the international regulatory and supervisory standards in Islamic finance. Financial market development has also been central to building a robust financial system. The Central Bank's efforts in this direction have included establishing the institutions and the infrastructure to improve market efficiency of money, capital and foreign exchange markets. The Securities Commission, the domestic rating agencies, Cagamas and the Cooperative Commission were among the initiatives initiated by the Bank. The development of a robust and vibrant foreign exchange market still remains an outstanding area of development. As a highly open economy, this market is a vital part of our financial system. The country exited from the Currency Board system in 1967 and introduced the ringgit (known as the Malaysian dollar then). The changeover was successful.