, the spate of product innovation with complex risk phenomena, the contagion effects that a crisis can spread given the linkages and interdependence of financial institutions, and the growing bis central bankers ’ speeches trend of businesses without borders, all call for a new approach to ensuring the financial health of our economies. and that, ladies and gentlemen, is what risk - focused supervision is all about. role of the supervisor in risk focused supervision the role of the supervisor in modern financial system supervision is to ensure that the risk management systems in place and the capital held, are appropriate for the variety of identifiable risks to which supervised financial institutions expose themselves on a day - to - day basis. the supervisor must have the authority and expertise to review and intervene in risk management processes, where necessary. this involves monitoring and evaluation of the risk profiles of supervised institutions in relation to their business strategies and risks. regulators and supervisors must fully understand any new financial innovations, instruments and market practices in order to have the expertise to develop models, assumptions and views of financial institutions, and certify the risk management of those supervised institutions. of course, the effectiveness of any risk - based approach owes a lot to the supervisor ’ s ability for early identification and monitoring of new and emerging risks. supervisors can devote a lot of time and effort toward trying to prevent or mitigate a risk incident but, as we have been taught, a good supervisor should target patterns of behaviour that give rise to excessive risktaking in the first place. when it comes to supervising for risk, behaviours matter. things like : • corporate governance • risk appetite ; • risk management ; • alignment of incentives to risk taking ; and • organisational culture ; are all important. institutions that have, and effectively implement these things, are likely to be well - run and would portray a good grasp of their risk environment. institutions that merely have them and do not effectively take action in ensuring that these are implemented, are inviting trouble. ladies and gentlemen, getting to grips with matters of risk management requires a more proactive approach from supervisors. • it takes a deep understanding of an institution ’ s operations and appetite for risk for its significant activities ; • it takes frequent interaction with regulated institutions at both board and management levels ; • it takes a capacity to assess the effectiveness of risk management and control functions, ( including how the institution is governed and the prevailing risk culture ) ; and, • it takes a capacity and willingness to act when inadequacies are

identified. none of these are easy to implement. risk - based approaches are resource - intensive. they require a hands - on, active approach to prudential supervision. they require experienced supervisors with deep industry knowledge. even after all that, there is no guarantee that supervisors will always make the right calls on risk. bis central bankers ’ speeches however in spite of such isolated moments where we as supervisors may not have made the right call, by targeting specific risk outcomes, risk - focused approaches to prudential supervision are better placed to enable us to make a material difference to the prudential health of the institutions we supervise, for any given level of resources. concluding remarks let me take this opportunity to thank the apec financial regulators training initiative and the knowledge sharing programme of the republic of korea for organising this workshop. i wish you a productive and exciting week and encourage you all to draw on the wealth of knowledge of the facilitators, as well as the rich experience of your fellow participants. do take some time to explore our wonderful islands, if this is at all possible. your fijian colleagues will only be too pleased to assist. we are known to be pretty friendly! on this final note, it gives me great pleasure to declare this workshop on risk - based supervision open. vinaka vakalevu. bis central bankers ’ speeches