shyamala gopinath : changing dynamics of legal risks in the financial sector inaugural address by ms shyamala gopinath, deputy governor of the reserve bank of india, at the symposium on “ changing dynamics of legal risks in the financial sector ”, kochi, 30 october 2009. * * * it gives me great pleasure to be amidst you all today to inaugurate this symposium. at the outset, i may say that this symposium on “ changing dynamics of legal risks in the financial sector ” could not have been organized at a more appropriate time than now. the recent global financial crisis has brought to light various risks. it has to a great extent blurred the distinction between operational risks and legal risks. as they say, each crisis opens up opportunities for learning and innovation ; it is just the right time for the legal fraternity to put on their thinking cap and investigate which of the many risks that culminated in the crisis may be identified as legal risks and what legal steps could have been taken that would have mitigated its effects. contextually in the wake of increased financial integration and globalization, it is essential that in - house legal officers also have an understanding of legal risks from a cross border point of view. i have no doubt that a symposium like this in which heads of legal departments of various regulators, banks and financial institutions are participating where they will have an opportunity to interact with distinguished speakers having rich experience in the field, drawn from within the country and abroad, will provide a proper direction to identify and deal with legal risks. as a central banker with three decades of experience i have had occasions to deal with diverse operational problems and difficult issues. i have no hesitation in saying that inputs received from the legal department of rbi have been very useful. at times one may feel that the legal opinion is a bit too rigid and conservative and fails to recognize the dynamics of the sector, but in the end we all need to appreciate that legal risks have to be accorded prime consideration and addressed. what is legal risk? there appears to be no concrete definition for the expression “ legal risk ” nor do i venture to make an attempt at defining it considering the complexities and variations in the risks involved. the basel ii accord covers “ legal ” risk under “ operational ” risk. legal risk may vary from institution to institution depending on the manner in which it conducts its business and the documentation it follows. the legal risks primarily arise either due to lack of clarity of the documentation of the product or the act of

out of increasing competition, as well as agency problems between management, owners and other stakeholders are inducing banks to look at newer avenues to augment revenues, while trimming costs. consolidation, competition and risk management are no doubt critical to the future of banking but i believe that governance and financial inclusion would also emerge as the key issues for a country like india, at this stage of socio - economic development. once again, let me thank governor husain for his kind invitation and the audience for their patient hearing. thank you.