This addresses a key lesson from global financial crisis – that greater attention needs to be directed at identifying and managing systemic risks that arise from interactions between financial institutions and markets, and their collective impact on the broader financial system. As interlinkages within and beyond the Malaysian financial system deepen, the sources of potential vulnerabilities and shocks can be amplified, with larger and more complex institutions posing greater risks to system-wide stability. Bank Negara Malaysia’s prudential standards and the intensity of our supervision will be more differentiated going forward to reflect these risks. In recent months, we have issued two standards on operational risk and compliance. These standards reflect the differentiation by setting higher expectations for larger and systemically important financial institutions. Bank Negara is also assessing options to ensure that systemically important institutions have adequate capital buffers; that their capital is proportionate to the risks posed to the broader financial system and the possible costs of failure. In addition, we are progressing work in coordination with PIDM to develop an effective resolution and recovery framework. Banks are expected to continuously assess and identify critical functions from a systemic perspective within their operations, and prepare contingency and recovery plans to preserve those functions under a stress scenario. Bank Negara will engage the banking industry to share more information on this initiative, including our implementation approach. A concept paper on this will also be issued for comments. Raising the bar on governance Finally, we will continue to raise the bar on governance.

30  9  All speeches are available online at www.bankofengland.co.uk/speeches  9  During the first three Industrial Revolutions, the skills workers needed to keep one step ahead of the machine were largely cognitive. Machines undertook largely manual (“doing”) tasks, which had previously used labour-intensive technologies. Cognitive (“thinking”) tasks remained, by and large, the exclusive domain of humans. So institutions emerged to nurture thinking skills, largely in children and young adults, to increase the chances of successful transition to the cognitively-intensive future world of work. In children, the most important of these institutional innovations was probably compulsory schooling. For children between the ages of 5 and 10, this was formally introduced in the UK with the Elementary Education Act of 1880. It was extended to age 11 in 1893 and age 12 in 1899. The Fisher Act of 1918 provided for compulsory education to age 14 and part-time education to age 18. Compulsory full-time education was extended to age 15 in 1947 and age 16 in 1972. 33  As these pieces of social infrastructure developed, so too did standards of educational attainment and cognitive skills. The fraction of the population aged 15 and over that attended secondary school rose from 23% to 60% between 1950 and 2010. 34  In the 1950s, less than 11% of the relevant age group passed five  or more GCSE O levels in England and Wales. By 2010, that had reached almost 80%.