muhammad bin ibrahim : the challenges of corporate governance in the financial services sector keynote address by mr muhammad bin ibrahim, deputy governor of the central bank of malaysia ( bank negara malaysia ), at the university malaya ’ s ( in collaboration with the asian institute of chartered bankers and the international centre for education in islamic finance ) workshop on “ the challenges of corporate governance in the financial services sector ”, kuala lumpur, 6 august 2014. * * * it is my pleasure to be at this workshop on the theme of “ challenges of corporate governance in the financial sector ”. i would like to congratulate the university of malaya, the asian institute of chartered bankers and the international centre for education in islamic finance for the joint effort to organise this event. i am also encouraged to see speakers from the world of academia, the financial industry and the public sector congregate to offer different perspectives on this important topic. my remarks today will touch on recent issues relating to corporate governance standards with particular emphasis on the financial sector. the growing emphasis on good governance the motivation for strengthening corporate governance in the financial sector is well - established. unlike other industries, the financial sector plays an important intermediary role that relies heavily on public trust and confidence. being highly visible entities, any lapse or failure in the governance of financial institutions, whether real or perceived, would attract adverse public reaction and could severely affect their reputation and public confidence. the failure of a systematically important financial institution may also result in serious ramifications and costs to the economy, given their roles and inter - linkages within a country ’ s economy. for this reason, especially in the conduct its business operations, financial institutions are subjected to a higher standard of integrity and professionalism. in recognition of this, statutory responsibility is entrusted to the board and senior management to steer the institution and to safeguard its safety, integrity and reputation at all times. as public interest entities, actions by financial institutions have far reaching implications for a wide range of stakeholders. modernising corporate governance for the banking sector and the insurance industry has been a major focus for bank negara malaysia following the asian financial crisis in 1997. in the years since then, various regulatory reforms have been implemented to strengthen board practices, roles and responsibilities. these reforms include requiring the establishment of board committees, enhancing the independence of the board, expanding transparency and raising disclosure requirements. we also commissioned a study on board remuneration with the aim to improve board remuneration packages and as a way to retain and attract

accountability with cross - sector regulatory requirements. there must be clarity over the accountability for the integrity of transactions, security of information transmitted, adherence to a consistent set of regulations and proper maintenance of the system. and it is important to note that higher standards of control will also result in higher costs to the service providers. cross - sector policy issues must be resolved, and clear accountability with respect to the operations of the system must be established. systems of governance to engage with different legislative requirements, from capital requirements to anti - money laundering regulations, must be in place. players need to have the requisite skills and knowledge to address issues promptly with different stakeholders, such as customs, immigration, police and international agencies like interpol. even if the non - bank players do not need to directly engage with these issues, they must have high degree of awareness in order to work effectively with their partner financial institutions. measures taken in malaysia to develop a more inclusive financial sector allow me to now share malaysia's experience in addressing financial inclusion and branchless banking. in malaysia financial inclusion has been a high priority in our national agenda for many decades. since the establishment of the central bank, there has been a conscious policy to have an extensive commercial banking branch network across the country, to ensure the outreach, in particular, to cover the non - urban areas. malaysia now has 10. 2 branches for every 100, 000 individuals as opposed to the global median of 8. 4 branches for every 100, 000 individuals. in malaysia, more than 80 % of the population also have some form of savings account. this has also contributed to the financialisation of savings in the country. deposits as a percentage of gross domestic product is 180 %. this means that savings is mobilised even from small savers into the formal financial system. this allows the savings to be channelled to productive economic activity. to further drive the provision of basic financial services to the underserved, the national savings bank in malaysia has been mandated in 2006 to enhance the outreach of deposit services and micro - financing. their efforts, together with those of commercial banking institutions and government mandated micro - financing agencies, have resulted in a significant expansion of micro - financing. micro - financing has increased from rm151 million in 2000 to rm2. 2 billion in september 2009, representing an annual average growth rate of 34 %. the bank also reviewed its existing legislation, and this year the new central bank act of malaysia 2009 came into effect a week ago, on 25 november