Such a process is undeniably messier, less predictable and possibly harder to explain in a consistent way. But it is also precisely these very characteristics that make it much more relevant in the world that we live in today. 3/5  BIS central bankers' speeches  At the Bank, our work on proportionate regulation and risk culture aims to support this evolution. For example, the innovation sandbox allows financial institutions greater regulatory room to test innovations within a controlled environment and learn from emerging experience. We are also examining options to better tailor the regulatory framework to the size and complexity of financial institutions. And we are directing greater supervisory focus on an institution’s prevailing risk culture to determine the degree of supervisory intensity that we apply to individual institutions. We expect these developments to pave the way for more constructive dialogue with institutions to achieve regulatory frameworks that will deliver a sensible balance and greater synergies between risk and innovation. Building resilience The third important shift that I want to mention concerns a stronger focus of innovative risk management approaches on building resilience, in addition to simply averting or reducing risks. In the area of network security, organisations are increasingly adopting an “assume breach” paradigm where they operate on the assumption that a risk event has already occurred. In the financial world, reverse stress testing is being incorporated into risk management approaches to identify the scenarios that would break an institution.

Zeti Akhtar Aziz: Brief remarks on managing financial instability and shocks in a globalising world Introductory remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Tun Ismail ali Chair Public Lecture, Kuala Lumpur, 6 February 2004. *  *  *  We are indeed honoured and privileged to have Dr. Yilmaz Akyüz, holder of the Tun Ismail Ali Chair in Monetary and Financial Economics at the University of Malaya, to speak to us today on “Managing Financial Instability and Shocks in a Globalizing World”. The Chair on Monetary and Financial Economics at the University of Malaya was established by Bank Negara Malaysia in recognition of the contributions of the late Tun Ismail bin Mohamed Ali, the first Malaysian Governor of Bank Negara Malaysia. It is our hope that this Chair would contribute to enhancing expertise and knowledge in the area of monetary and financial economics. Ladies and gentlemen, Let me make a few brief remarks on the topic of today’s lecture, based on our experience in managing the Malaysian economy. Uncertainty and instability are the defining feature of the international financial system today, as borders have become more porous, financial markets more integrated and as financial flows have surpassed trade flows as the dominant determinant of the international financial environment. Emerging market economies have become more vulnerable to international shocks which can have a significant adverse impact on the economy. Malaysia has approached this more challenging environment by increasing our own resilience and tolerance level to these shocks.