16 Hence, it is far more effective that the supervisory process work alongside strong and effective Boards and Management in banks. If there are failings or violations that bypass our supervisory reviews, then enforcement actions must be meted out accordingly. 17 This supervisory philosophy is underscored in what is commonly described as the four lines of defence in a 2015 BIS Occasional Paper, as well as the 2015 Basel Committee’s guideline on Corporate Governance principles – that describe the roles of (a) Boards, Management and Business Units, (b) Risk and Compliance, (c) Internal as well as External Audit, and (d) the Regulator. Challenges and opportunities 18 Much has been reported about innovations in the FinTech space, and the disruptions brought about by technology in practically every aspect of economic and social activities. 19 Recent technological developments have also presented regulators with both new challenges and opportunities. For instance, the foray by hitherto non-regulated entities into various aspects of payments and financial services could necessitate a change from an institution-based regulatory approach towards an activity-based framework. But at the same time, this can also allow a regulator to “right-size” regulations for both traditional and evolving business models according to the risks the activity poses. I can cite two examples: Virtual currencies first emerged about 10 years ago. Since then, we have observed an increase in the number of initial coin (or token) offerings in Singapore. As with most financial regulators, MAS does not regulate virtual currencies.

Given the considerable attention on the Basel III reforms, it is easy to forget that a core mandate of the Basel Committee is with respect to its work on supervisory practices. 4 So this morning, allow me to share some thoughts on three areas with respect to banking supervision: i. The Next Phase – beyond the review on Capital and Liquidity rules; ii. Banking Supervision as a Craft; and iii. Supervisory Challenges and Opportunities. The next phase 5 As many of us will be familiar, the Basel III framework has a second Pillar that pertains to risk management and supervision including accounting for risks not captured under Pillar 1. Indeed, the Basel Committee devotes considerable attention to various pieces of work under this Pillar, such as on stress testing, accounting standards, corporate governance and supervisory colleges. Disclosure requirements are further reviewed under Pillar 3 to foster market discipline. 6 Following the recent finalisation of Basel III, the next phase will be centred on a “full, timely and consistent” implementation globally. This is important to reduce risk of regulatory arbitrage. Every jurisdiction or region will of course be different in the degree of openness, internationalisation, and the maturity and sophistication of their banking systems. The Basel Committee has been 1/5  BIS central bankers' speeches  mindful that its standards are calibrated as minimum requirements, and in limited situations, some supervisory discretions have been provided including the use of Pillar 2. 7 Risk proportionality is not a new concept in international banking rules.