services, and the use of monetary policy tools to influence economic activity. 1 / 5 bis - central bankers'speeches as technology continues to develop, we are seeing our monetary and financial system also evolve and we all need to be ready for change. meeting the challenge : transforming regulation and supervision now, it's becoming something of a truism to say that the global economy is fragmenting while the world, including countries such as ours, starts to undergo significant economic transitions – in demography, in technology, in climate – while also experiencing a period of unprecedented innovation1. and change isn't just coming ; in some parts of the world it is already here. in the face of a changing ecosystem, central banks, regulators, businesses and consumers all have to adapt, transform and evolve. for our part, we are changing how we work and how our frameworks reflect an increasingly digital world. while this transformation is across the whole of the central bank, i want to point to some of what we've done so far. we have been changing how we engage with innovation in financial services, enabling us to deepen our understanding of innovation, better inform our regulatory approach, better explain to innovative firms what being regulated entails and better embed a regulatory culture in fledgling and fast growing firms. since last year's conference, where we announced a consultation on our approach to innovation engagement, we have successfully launched an innovation sandbox programme. 2 we have already received a substantial number of applications to our combating financial crime sandbox, from across the innovation ecosystem ( from early - stage startups, scaling firms, established financial services firms, and forward - thinking partnerships ). the projects submitted are exploring new technologies and developing innovative methods to tackle financial crime, benefiting both the financial system and consumers. in the coming weeks, we will be announcing the selected participants and we look forward to sharing the insights and learnings that emerge from that work. in addition to our engagement with innovation, we'll continue to modernise our other frameworks. these include our consumer protection code while we work with our european partners on the digital euro and on negotiations regarding the new eu financial data access regulation, among other things. our most comprehensive response to the changing financial system comes in the form of our new supervisory framework. 3 2 / 5 bis - central bankers'speeches this is a direct response to the rapidly - changing and interconnected financial system which we supervise, recognising that we need to change

craft of supervision 11 rules and standards cannot replace judgment. good supervisory instincts and technical competence are required to discover, scrutinize and evaluate key risks. this can only be done if banking supervisors do not see their role as a mere compliance function. an effective banking supervisor must be able to assess a bank ’ s understanding of its risks, its business practices as well as judge its corporate governance and culture. 12 the need for consistency and rigour also mean that supervisory judgment is not just an operational matter. having formal supervisory decision - making forums is an important component of a good supervisory process. for example, in the mas, our banking supervision heads come together in regular meetings to guide supervisory reviews and decisions. as an integrated supervisor, i also chair a management financial supervision meeting as well as a regulatory actions meeting that oversees the broad scope of our supervisory policies and enforcement actions respectively, across banking, insurance and capital markets activities. in other words, supervisory practices require as much thought and policy considerations as the rules and regulations. this is also why exchanges with fellow regulators during supervisory colleges are very helpful and important too. 13 i have earlier mentioned that rules and regulations should be risk proportionate. this is true as well for banking supervision. it is impossible for supervisors to review and inspect all the 2 / 5 bis central bankers'speeches financial institutions under our charge to a wide and deep extent given finite resources and time. this is neither feasible nor desirable. 14 it is more logical and effective to differentiate our supervisory intensity according to the risk profiles of each bank. in recent years, mas has also moved towards greater use of thematic reviews and inspections. this means that we inspect a peer group of institutions at a time in a specific risk area. we find that such a peer group approach also facilitates better identification of vulnerabilities, and allow for industry benchmarking as well as the sharing of best practices. 15 an effective supervisory process should also involve a preparedness to take tough enforcement actions. it is a practical reality that no amount of regulations and supervisory reviews can catch all possible potential misdemeanours or excessive risk - taking. to do so, a financial regulator would have to be regularly and extensively intrusive to a point that a bank would find it hard to function. ultimately, a bank ’ s board and management must be responsible for its business conduct and risk management. 16 hence, it is far more effective that the supervisory process work alongside strong and effective boards and management in banks. if there