market, or after receiving complaints from an affected party? or should it rely on monitoring of every innovation and assessing suo motu whether there are harmful effects? often, many innovations look attractive in the short run because risks are back - loaded on some and rewards are front loaded on others. in finance, pressure on regulators to regulate is also back loaded, and is often too late. different industries have different approaches and tools to regulate, and the point at which regulators ’ jurisdiction is activated varies across industries. for example, in pharmaceuticals, the regulator has to approve ex - ante, while in regard to restrictive trade practices it may be ex - post. in many industries, regulations address issues relating to innovations. for example, in the pharmaceutical industry, considerable experimentation is demanded and ex - ante approvals are required for marketing. in engineering systems, the consistency of innovations with network in which they are to be applied is often required to be certified, by either an industry body or the regulator. in many others, innovations are left to the market test, unless they happen to have ex - post, negative effects, in which case public policy may consider intervening. in brief, there are several industries which have been subject to different systems of regulation, and they have stood the test of time. the financial sector should be able to draw lessons from such experiences, recognising the unique characteristics of the financial sector. such lessons will also help in differentiating between technological, process and product innovations. markets are, indeed, a source of many innovations, but there are examples in many industries where the public sector has been active in promoting innovations. there is merit in central banks encouraging innovations in the financial sector that have the potential to serve the public. i agree with chairman ben bernanke when he said, referring to striking the right balance between consumer protection and responsible innovation, “ our goal should be a financial system in which innovation leads to higher levels of economic welfare for people and communities at all income levels ” ( bernanke, 2009 ). my submission is that central banks in particular, and regulators in general, could be more proactive in promoting and incentivising appropriate innovations in the financial sector, and drawing on the experience of other industries may be of considerable value in evolving policies towards financial innovations. effectiveness of regulation there is considerable agreement that better and more effective regulation is of vital importance to the financial sector, and that more regulation is not necessarily better. at the same time, the experience

yet become fully consistent in many of its parts, reference to gold, which performed a monetary function for thousands of years, can still contribute, in the decades ahead, to preserving that fundamental condition for orderly economic activity - price stability. the experience of the period following the second world war shows that macroeconomic stabilization has always provided the basis for the growth of the most successful economies. conserving this stability and the soundness of economies ’ fundamentals is one of the principal tasks of governments and central banks.