moved to streamline the examination process to make it more focused on risk - management. our financial regulation strategy now emphasizes : • active oversight by management and the board of directors ; • clearly defined policies, procedures and authority ; • comprehensive risk measurement and risk mitigation ; and • adequate systems of internal controls. unlike in the past when the focus was mainly on capital and operating results, the new regulatory strategy requires the central bank to take a far greater interest in the corporate governance of financial institutions. understanding how institutions are managed is now the key. the hallmark of our regulatory approach is to identify problems early – well before they manifest themselves in the financial statements when it is usually too late to act effectively. early intervention allows us to work with management and boards to effect remedial actions. early identification of problems essentially involves a qualitative assessment of an institution ’ s risk management processes and methodology, its internal control environment and its compliance mechanisms. as regulators we cannot do this alone. this is where you, as internal auditors, have a critical role to play. this is where the work of the internal audit and the supervisory function are closely aligned, specifically in the identification, management and mitigation of risk, and ensuring that the institution ’ s operations are conducted effectively, efficiently and in compliance with applicable laws and regulations. increasingly over the last decade operations risk has taken on greater prominence within the context of enterprise risk management systems. as you know, operations risk arises from inadequate or failed internal processes, people or systems or from external events. operations risk has always been a part of banking but it has become a greater threat to the safety of financial institutions in the contemporary financial environment. this is because the institutions themselves have become more complex and their products and services have become more numerous and varied. in addition, advances in information technology have greatly increased the speed at which vulnerabilities in one institution can escalate into serious problems in other institutions. consequently, there has been an increasing incidence of failure linked to operations risk. in 2003, the basel committee on banking supervision, the main international standardssetting body for bank supervision, identified as a cardinal principle the responsibility of the board of directors “ to ensure that the bank ’ s operational and risk management framework is subject to effective and comprehensive internal audit by operationally independent, appropriately trained and competent staff ”. that ’ s the mandate that all banks face and that ’ s the challenge for all of you internal auditors. what this implies is that internal

2012, scientists at the cern laboratory discovered the latest subatomic particle – the higgs boson – named after the nobel prize winner in physics peter higgs, and known by its nickname the “ god particle ” in popular media outside the scientific community. the higgs boson is thought to give everything else in the universe mass and to keep the universe from destruction. it is part of shiva ’ s tandava dance. is it a coincidence that the statue in front of the cern complex is none other than shiva nataraja – the dancing shiva? for many modern physicists, shiva ’ s tandava dance is seen as the dance of subatomic matter. the tandava thus unifies ancient mythology, religious art and modern physics. here at the central bank, some would say that our monetary policy is similar to the tandava dance, as we move our policy interest rate to destroy inflation, create the conditions for growth in the non - energy sector, and protect the foreign exchange market. or they might even say that the clico crisis has been a process of creative destruction, with the pain of thousands of policyholders making way for new and stronger insurance regulation and supervision. two weeks ago, professor angus deaton won the 2015 nobel prize in economics. professor deaton has changed our thinking about world progress. his popular book the great escape : health, wealth and the origins of inequality, traces the ways the world has gotten better over the last 250 years, as billions of people have become healthier and happier as gdp has grown. but he notes crises can interrupt progress, and he worries about the millions of people who are being left behind by this progress, especially in developed countries where inequality is growing and economic growth is slowing. professor deaton ’ s works reminds us that pain and gain are inextricably linked to creative destruction. hopefully, you will leave here tonight with a greater appreciation of the message of divali. remember the act of lighting a deya is creative destruction, destroying evil and darkness and creating a new opportunity for the satyam, shivam, sundaram ( truth, goodness and beauty ) of the universe to unfold. i wish you and your family shubh divali 2015. may your paths always be lit ; may your minds always be illuminated. i hope you enjoy lord shiva : creative destruction. bis central bankers ’ speeches