muhammad bin ibrahim : raising performance standards and improving consumer protection in the malaysian insurance industry speech by mr muhammad bin ibrahim, deputy governor of the central bank of malaysia, at the insurance and takaful industry annual dinner 2013, kuala lumpur, 15 november 2013. * * * it is my great pleasure to join all of you this evening at the insurance and takaful industry annual dinner 2013. this is indeed a significant and unique gathering as we have the whole of the insurance and takaful industry represented here tonight. the collective wisdoms of those present in this hall tonight, if harnessed well, could significantly alter the insurance landscape towards a more diversified, efficient, and competitive industry. we are facing an increasingly complex business environment characterised by rapid advancements in technology, more discerning consumers and mounting competition, that necessitate the industry to adapt and continually innovate to remain competitive and relevant. of importance is for the industry to remember that the fundamental of insurance is premised on safeguarding consumers ’ interest against financial loss when things go wrong. consumers ’ interest is always at the heart of the matter. my remarks this evening will touch on some regulatory changes that have taken place, in response to the changing operating environment. my remarks will have strong focus on consumer protection. the financial services act and the islamic financial services act 2013 which came into force in june this year has provided the bank with statutory duty to foster fair, responsible and professional business conduct amongst financial service providers. such regulatory developments mark an important milestone in modernising malaysia ’ s financial sector which goes beyond the mandate of preserving financial stability. these laws ensure a robust financial consumer protection regime. the new legislations provide explicit powers for the bank to set and enforce standards on business conduct for financial service providers that ensure financial consumers are treated fairly. the laws also specifically prohibit financial service providers from engaging in unfair or deceptive business conduct including making false, misleading or dishonest representations, and tied selling. it is important to highlight that the new legislation also provides enhanced protection in respect to consumers ’ pre - contractual disclosure obligations in consumer insurance contracts. among others, an insurer or takaful operator must pose specific questions to consumers for its underwriting purpose. the legislation also sets out various remedies that an insurer may rely on depending on the type of pre - contractual misrepresentation made by the consumers. changes were also introduced under the new laws to deliver a more efficient regulatory regime for insurance and takaful intermedia

stability. among the institutions that was established to support the development of the domestic bond market was the establishment of the domestic rating agencies and cagamas, the mortgage corporation. the malaysian bond market has since evolved to become the largest in south east asia to now account for 110 % of gdp. this market has since been liberalised to allow foreign corporations to raise funding in both domestic and foreign currency. in these recent few years, there has been a number of successful reminbi bond issuance from our market to finance investment opportunities in china. various other key financial infrastructures were also put in place to enhance the efficient functioning of the intermediation process of the overall financial system. this included the infrastructure to support robust payment and settlement systems. in 2012, we introduced onshore settlement of reminbi transactions in our real time gross settlement system rentas via a local onshore settlement institution. as part of the development of our domestic financial infrastructure the malaysia deposit insurance corporation was establish to provide a comprehensive deposit insurance and insurance benefit system for the banking and insurance sector. this institution not only imposes discipline for risk management by the financial institutions through the imposition of differential premiums based on the risk profile bis central bankers ’ speeches of institutions, but it also is the resolution authority in the event of failure of a financial institution. underpinning the financial sector growth was also the development of a more robust surveillance, regulatory and supervisory framework. as the malaysian financial system evolved to become more complex, sophisticated and diversified, the regulatory and supervisory approach has correspondingly evolved from detailed and prescriptive rules to a risk - based approach that combined greater supervisory judgment and intensity with highlevel principles of sound practice. this is complemented with effective surveillance that is forward looking and focused on addressing the risks to overall financial stability. this decade has also seen the modernisation of the legal framework, that has included the enactment of two comprehensive laws this year to govern the financial sector under a single legislative framework for the conventional and islamic financial sectors. the implementation of these laws have strengthened malaysia ’ s financial sector by providing a consistent approach to regulation and supervision and enhancing the central bank ’ s power to take timely intervention actions in relation to financial intermediation activities that occur outside the banking system. following the global financial crisis, such shadow banking systems have come under greater regulatory scrutiny. specifically, regulators have been concerned with the scope that exists for non - bank financial institutions to perform financial intermediation activities in a way that replicates the