While efforts can be made to strengthen the legal and supervisory framework, from the financial industry perspective, strong understanding of risks and effective application of risk mitigation, including commensurate application of the AML/CFT measures are critical for the meaningful conduct and practices of financial institutions. This is particularly important in the conduct of CDD and transaction monitoring that will facilitate strong financial intelligence and reporting, to achieve the enforcement objectives. Authorities are committed to continuously enhance the current legal and supervisory framework. At the same time, financial institutions and other reporting institutions must be robust in their current practices and compliance. Technological Development Everyone agrees that technological advancement is moving at a pace far greater than ever before. For the financial industry to maximise the overall benefit of this progress, we must acknowledge both the advantages and the risks of such rapid technological advancement while keeping abreast with the latest innovations. New devices, software, applications and inventions will continue to emerge. The challenge is for us to keep pace and ensure that industry players understand the potential benefits as well as the risk they bear. As the financial industry evolves into digital, it is inevitable that the industry becomes vulnerable to various new threats and risk factors, especially in the domain of financial crimes and terrorism financing. In the effort to mitigate these risks, it is important that we embrace technology and use it to our advantage in order to strengthen our defences against financial crimes and terrorism financing.

To illustrate why some authors have gone as far as calling this “the credit rating crisis” (Benmelech and Dlugosz, 2009) consider that before the crisis more than half of the structured finance securities rated by Moody’s carried an AAA rating and, during the period 2007-2008, the tranches rated by Moody’s that were downgraded was close to thirty six thousand, where nearly one third of downgraded tranches bore the AAA rating. This is a complex issue, especially due to the prevailing incentives in this sector. A recurrent area of criticism on the incentives side is the simultaneous role of advisor and issuers of ratings. But the spectrum of potential conflict areas could be broader, and thus more efforts must be devoted to understanding in detail the operation and linkages of this industry. Final comments The subprime crisis has opened a debate on the risks of financial innovation. It reminds us that higher levels of sophistication do not guarantee the normal operation of the financial system. A reasonable level of regulation, control and monitoring is required. I think we should move forward in innovation processes, as they are positive, but we must move forward with caution. It is important to implement policy changes gradually to provide an adequate level of information and transparency that will ensure an adequate assessment of the risks involved. It is also crucial to review in detail the incentives and potential conflicts of interest arising from the new tools and processes.