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

april 2010. there are three basic things a central bank can do to mitigate the moral hazard associated with its crisis interventions : ( i ) limit crisis intervention to significant systemic events, as we have done ; ( ii ) encourage infrastructure development and regulatory reform that make the financial system more resilient to systemic shocks, thereby reducing the frequency and repetition of patterns leading to systemic events ; and ( iii ) maintain a flexible intervention strategy that can deal with specific types of systemic problems as they evolve. this flexibility, which acknowledges the inherent uncertainty surrounding the timing and magnitude of systemic crises, means that individual system participants will not know in advance how to transfer risk to the central bank at artificially low prices. 17 the use of auctions to price and distribute liquidity can be helpful in this regard. i ’ d like to expand on the second element, making the financial system more resilient to shocks. to reduce the probability of a crisis, there are actions that can be taken by the central bank and by the prudential supervisor. the actions that the bank of canada has taken or is taking include : encouraging and overseeing the implementation of liquidity - generating infrastructure, such as a central counterparty for repo trades, that help market participants self - insure against idiosyncratic shocks ; 18. maintaining standing facilities – our standing liquidity facility and emergency lending assistance – with either penalty rates or with stigma even in non - crisis times, which allow key institutions to determine when to approach the bank as the lender of last resort for funds. 19 this could stop large idiosyncratic shocks from cascading into systemic events ; 20, 21, and, monitoring financial institution liquidity against tighter criteria ( together with osfi ). on the part of prudential supervisors, the following are actions that are under way or have been proposed and that can also help make the financial system more resilient and thus mitigate moral hazard : establishing standards that encourage financial institutions to maintain sufficient liquidity to deal with the idiosyncratic or small systemic shocks they can expect to face and to have policies for sound liquidity management practices in place ; 22 this is consistent with the advice developed in 2008, except for the element of co - insurance, which was considered to be a possible measure in the first iteration of the principles guiding the bank ’ s extraordinary liquidity interventions. the concept of co - insurance has been replaced by the idea that financial institutions self - insure against idiosyncratic