By working together to set and voluntarily commit to baseline standards, the industry can demonstrate its readiness for a more risk-based regulatory approach. I hope that the industry will adopt these standards and this means moving beyond symbolic gestures, to the diligent implementation of policies and programmes that promote the desired culture. Bank Negara is also committed to ensuring that regulatory requirements support the country’s digital economy agenda. We are in the midst of developing e-KYC policy guidance to streamline practices of industry players in leveraging new technology. The guidance will clarify desirable outcomes of e-KYC adoption, and set out best practice as well as standardised parameters to measure effectiveness of e-KYC solutions. Our hope is that with its promise of seamless digital on-boarding of customers and lower costs, increased prevalence of e-KYC will help increase competition while also advancing the financial inclusion agenda – and this must be done without compromising on financial integrity outcomes. We will consult the industry and other relevant parties through the publication of an exposure draft early December this year. Third, we must strengthen our defences in view of new risks and changing environment. Recent years have seen authorities across the globe intensifying action against financial institutions for harbouring criminal activity. We see multi-billion dollar fines and all forms of regulatory sanctions, with some facing the threat of closure. On our part, Bank Negara will continue to use supervisory levers to sustain positive changes and drive improvements in the compliance culture in the industry.

We estimate the GDP growth rate that can be sustained without pushing up inflation – potential GDP growth – at between 1.5% and 2%. This is lower than the growth rate we have observed since 2006. Measuring the output gap is tricky, however, because certain favourable factors, such as the influx of skilled labour, the deregulation of certain domestic markets and increased global competition might have pushed up potential GDP growth. Having said this, however, we should not overlook those factors which have the opposite effect. For instance, equipment investment has receded, which has a dampening effect on potential growth. Moreover, even if capacity utilisation as a whole is not excessive, bottlenecks might occur in certain sectors of the economy. And, above all, experience has shown that the output gap is often underestimated during phases of growth. Consequently, the risk of underestimating the output gap may now be greater than that of overestimating it. The third risk is associated with the future development of the Swiss franc. As its exchange rate is determined by the market, it is subject to fluctuations. Movements in the export-weighted Swiss franc index alter the degree of restrictiveness of our monetary policy. Normally, during periods of rising  2  BIS Review 67/2007  interest rates, this index tends to increase, thereby amplifying the effects of monetary policy by mitigating price increases in imported products and slowing the expansion in economic activity. This reaction pattern was not observed during the past two years, which could put pressure on interest rates.