mr. ercel discusses financial risk and its management address by the governor of the central bank of the republic of turkey, mr. gazi ercel, at the sixth annual global finance conference, bilgi university, istanbul, on 8 april, 1999 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _, dpsohdvhgwrehkhuhwrgd \ irudnlqglqylwdwlrqri * oredo ) lqdqfh $ vvrfldwlrqdqgøvwdqexo % lojl university. today i like to discuss financial risk and its management which are one of the hot topics in the international financial circles. the 1980s and 1990s witnessed a major transformation in the international financial markets. the advent of more complex and dynamic transactions have substantially increased uncertainties in the marketplace, and, in today ’ s environment, dominated by a dynamic, aggressive financial service industry, market participants are exposed to greater financial risks than before. of course, there are several reasons for these changes. the first reason is the globalization of the international markets. markets all over the world are becoming consolidated into a vast world market as obstacles to the free movement of capital are gradually being removed. this can be seen in the present global crisis, which arose because problems occurring in one region of the world promptly made themselves felt by markets and investors in other regions. another reason is that the international markets have become much more volatile. volatility, which means the fluctuation of market prices and ratios, is one of the principal sources of financial risk. when market volatility increases, market participants are exposed to greater uncertainty - - and greater risk. still another change of conditions in the international markets is the appearance of new forms of investment with very complex structures. the great variety of these investment tools has led to the development of still others, like derivative instruments, aimed at reducing the degree of risk associated with several financial transactions. derivative instruments are being more and more widely used in the hope of reducing risk in the financial markets, but the losses coming from derivative operations have also begun to increase. the worldwide increase in the

a committee on deepening of digital payments under the chairmanship of shri nandan nilekani was formed which has submitted its report. recently, the reserve bank came up with a payment system vision 2021 to ensure uninterrupted availability of safe, secure, accessible and affordable payment systems. the reserve bank will examine the recommendations of the report of nilekani committee and dovetail the action points, wherever necessary, with vision 2021, for implementation. 4 / 6 bis central bankers'speeches 23. ninth, we also need to address the existing inadequacies in customer service and benchmark it against international standards. efforts in developing robust customer grievance redressal mechanisms to increase customers ’ trust and confidence in payment systems will be continued. given the rising popularity of digital payments, data protection and cyber security norms need to be continuously strengthened. with the emerging threat landscape, where organised cyber - crime and cyber warfare are gaining prominence, working towards ensuring continuous protection against the changing contours of cyber security threat becomes imperative. as banks ’ engagement with technology is increasing at a rapid pace, the challenge for the regulator would be to balance efficiency with prudential measures to mitigate risks to be able to harness the opportunities offered by fintech. 24. let me now turn to nbfcs. the conventional approach to their regulation and supervision has been light - touch, so that they could complement banks with their diverse financial products for niche areas and reach a large cross - section of population through innovative service delivery mechanisms. however, with a view to strengthen the sector, maintain stability and avoid regulatory arbitrage, the reserve bank has been proactively taking necessary regulatory and supervisory steps, keeping in mind the requirements of the time. in the light of recent developments, there is a case for having a fresh look at their regulation and supervision. it is our endeavour to have an optimal level of regulation and supervision so that the nbfc sector is financially resilient and robust. at the same time, nbfcs should be enabled to operate as wellfunctioning entities with necessary capacity to reach wider sections of population. the reserve bank will continue to monitor the activity and performance of this sector with a focus on major entities and their inter - linkages with other sectors. we will not hesitate to take any required steps to maintain financial stability in the short, medium and long - term. 25. as you are aware, fine tuning and improving supervision and regulation are continuous exercises. towards this