Ladies and gentlemen, A sustained process of excessive financial deregulation and over reliance on market discipline particularly in advanced economies which led to a prolonged cycle of optimism and  BIS Review 64/2010  3  risk taking has been widely cited as part of the root cause of the recent global financial crisis. Indeed, the pre-crisis era was a period of exuberance in financial innovation and rapid development in the conventional financial landscape. Although it was argued that financial deregulation encourages innovation which in turn result in the more efficient allocation of resources, the recent crisis has shown that there is a need to balance between market discipline and regulatory oversight. Whilst there is general support for the reform measures, there is also concern on the dangers of over-reaction by policymakers that could undermine the role of financial intermediation, and adversely affect the ultimate objective of economic growth and development. The concern is specifically on the unintended consequences of the regulatory reform. Financial stability is not an end in itself; it is a means towards achieving the ultimate goal of sustainable growth and shared prosperity. This presents the challenge for policymakers in finding the appropriate balance between preserving the resilience of the financial system versus maintaining the ability of the system to perform their intended function of delivering effective, efficient and innovative financing solutions to customers in the wider economy. Hence, the concern is that that the regulatory reforms would increase the cost of financial intermediation.

As Malaysia moves into the next stage of economic development, by transforming from a mainly production-based economy to a more innovation-driven and knowledge-based economy, the financial services sector will play a prominent role in this evolution. In support of this transformation, Bank Negara Malaysia is developing a new blueprint for the financial services sector. This blueprint will chart the next phase of the development of the financial sector, position the financial sector as one of the main catalysts for the transformation of the Malaysian economy and ensure our economy remains robust and resilient to respond to any emerging risks. Risk management for insurance institutions It is expected that the financial sector in Malaysia will expand and become more complex and inter-connected over time. Therefore, the corporate governance and risk management practices in insurance institutions will also need to evolve to keep pace with the fastchanging environment. It is a fact that institutions which performed better during the crisis were consistently differentiated by more robust governance and risk management practices. According to a recent Towers Perrin survey of major U.S. corporations, failure in risk management has been cited to be the key characteristic of financial institutions that suffered large losses during the global financial crisis. Thus, improving risk management was the top priority of CFOs in reaction to the global financial crisis. Prioritizing risk management is even more important for insurance companies. This is due to the fact the core activity of insurance involves risk-taking and risk-transfer, and that insurance risks are usually long-tailed.