Bank Negara Malaysia has already for some time now, put in place a framework in which the supervision of individual institutions is complemented with macro-prudential assessments. Risks identified at the macro-level provide important inputs to supervisory assessments of individual institutions, while the collective behaviours of individual institutions provide information on the build up of risks in the system. Financial institutions would already be familiar with this through the Financial Stability Report of the Bank and with the stress testing parameters. The ability of the Bank to undertake surveillance and act pre-emptively to avert risks to financial stability will also be further enhanced when the new Central Bank of Malaysia Act 2009 comes into force on 25 November 2009. This includes the expanded powers for the Bank to undertake surveillance and prompt resolution on financial institutions including on non-regulated institutions that are systemically important. As we continue to refine our approaches, and develop a better understanding of market behaviours, financial institutions will also need to better integrate institutional risk assessments with macro-economic developments. International reforms have also focused on delivering fair outcomes for consumers. In relation to this, the Bank will continue to ensure that financial innovations are developed to meet the real needs of consumers and businesses, and do not expose the system to excessive risks. Ongoing efforts to strengthen avenues for consumer redress will continue through the establishment of a financial ombudsman and improved product transparency, particularly in the area of pricing, commissions, fees and charges so as to support more informed consumer decisions.

The approach will also continue to be risk-based, in which the expectations in governance and risk management are higher for the larger and more complex financial institutions, and when these expectations are not met, the Bank will respond with supervisory actions. The Bank will continue to act pre-emptively to deal with the risks, at the institutional and system levels. Judgements will be applied based on a broad range of information available on the potential build-up of risks. The regulatory framework adopted will continue to be consistent and aligned to international standards to safeguard the stability of the financial system. In this regard, Bank Negara Malaysia will implement the changes by the Basel Committee to improve the risk capture of Basel II for trading book, securitisation and counterparty credit risk exposures. We will also positively consider developments by the International Association of Insurance Supervisors to achieve internationally consistent capital standards for insurance companies. We will be introducing changes to improve the liquidity framework and strengthen the quality of capital, focusing in particular on equity as the predominant form of capital. We also support the global initiatives that are aimed at reducing the complexity of products, strengthening transparency and improving incentive structures. An area of current international deliberation which will have a significant implication on the domestic regulatory and supervisory environment is the increased emphasis on the macroprudential dimension of regulation and supervision. A key lesson drawn from the crisis has been the inadequacy of supervision that was primarily focused on individual institutions.