the compliance function should protect the institution against unlawful behaviour and strengthen its ethical consciousness. a board of directors of any financial institution should approve and oversee the institution ’ s strategic objectives and set a compliance culture. similarly, the board should ensure that the financial institution has adequate policies and procedures that enable oversight activities to be carried out on all business lines. given their fiduciary responsibilities, financial institutions, in particular, should comply with applicable laws and regulations in the jurisdiction in which they operate. 1. 5 the word “ compliance ” has also a connotation of regulatory and supervisory structures, which means that there is an external regulatory or supervisory body to ensure that financial institutions adhere to norms, guidelines and rules set by it. compliance efforts will be effective and sustainable only in organizations where compliance emerges from an ongoing board - level engagement. compliance management therefore is the execution of business processes designed to manage risks and to continuously benchmark against expected parameters / tolerance levels applicable for the entire industry. 1. 6 compliance is considered to be costly, time consuming and an onerous endeavor. but, many financial institutions understand the criticality and the importance of better grc and they are willing to devise strategies for leveraging their grc systems to derive value as well as increase their compliance performance. behind all these imperatives is the commitment at all levels to manage grc in an integrated manner and inculcate the culture across the financial services industry. 1. 7 the three grc imperatives are interrelated in financial business and implementing them in isolation or treating them as separate elements would not be fruitful. in the past, most organizations have traditionally viewed, and some still continue to treat, grc as separate components. the emerging perception of grc is that it is an integrated set of concepts and, when applied holistically within an organization, it can add significant value and provide competitive advantage. further, the holistic approach would be more efficient, consistent and legally sound and the boards of directors, senior management and staff at all levels would be involved in the organization ’ s conduct of business. most financial institutions have viewed grc as discrete activities undertaken by different departments with no coordinated efforts. as a result, there is a lack of integration of grc across business areas or functions. 2. new regulations and pressure for integrated risk management 2. 1 during the past few years, regulatory and compliance requirements of the financial institutions have strengthened globally. since the first updating of the basel capital accord in the late

japan's financial system has maintained stability on the whole. although attention is warranted on, for example, the impact of the tightening of global financial conditions, the financial system is likely to remain highly robust on the whole, even in the case of an adjustment in the real economy at home 1 / 2 bis - central bankers'speeches and abroad and in global financial markets, mainly because japanese financial institutions have sufficient capital bases. regarding financial risks from a longer - term perspective, while there is a possibility that prolonged downward pressure on financial institutions'profits may lead to a gradual pullback in financial intermediation, the vulnerability of the financial system could increase, mainly due to the search for yield behavior. although these risks are judged as not significant at this point, it is necessary to pay close attention to future developments. ii. conduct of monetary policy next, i will explain the bank's conduct of monetary policy. the bank considers that sustainable and stable achievement of the price stability target is not yet envisaged with sufficient certainty at this point, and that it is important to closely monitor whether a virtuous cycle between wages and prices will intensify. in this situation, it will patiently continue with monetary easing under quantitative and qualitative monetary easing ( qqe ) with yield curve control, aiming to support japan's economic activity and thereby facilitate a favorable environment for wage increases. in october, the bank decided to conduct yield curve control with the upper bound of 1. 0 percent for 10 - year japanese government bond ( jgb ) yields as a reference and to control the yields mainly through large - scale jgb purchases and nimble market operations. this decision was based on the assessment that it was appropriate for the bank to increase the flexibility in the conduct of yield curve control. the bank will conduct monetary policy with the aim of achieving the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. thank you. 2 / 2 bis - central bankers'speeches