there are as many, if not more occasions in the non - financial corporate sector where audit reports do not reflect the true reality. i would like to raise one other challenge that internal auditors are likely to face, particularly in smaller institutions, where there is not sufficient talent to go around. this challenge has to do with maintaining the independence of the internal auditor. internal auditors are in a unique position to obtain an informed perspective of the organizations for which they work. as such, they are in the best position to assist and advise management on developing the broad principles that should govern the risk management and internal control environment. on the other hand, to be effective, internal auditors need to be independent and cannot assume a line - management role for control activities, including those they helped to design. accordingly, internal auditors need to be continually alert to conflicts of interest. it is a situation that calls for delicate professional judgment to promote a win - win situation. let me close by again emphasizing that by and large our internal audit profession has served the country well. i am sure that your dedication and quality efforts have contributed to strengthening our corporate sector and to avoiding some of the pitfalls other countries have faced. but you must ensure adherence to the highest professional standards. perhaps one way of doing that is for the institute of internal auditors, as the governing body of the auditing profession to take a more aggressive leadership role, by implementing some form of structured oversight of the auditing profession. this oversight would be in keeping with what now exists in several parts of the world – in both developed and developing countries. i am sure you know that the continued absence of appropriate oversight carries potential legal and reputational risks, especially for financial institutions which operate in a fiduciary capacity. and my final suggestion to you, individually and as a group, is to continue upgrading your skills. improvements in technology, the quick pace of financial innovation and evolving riskmanagement techniques will ensure that businesses will use increasingly complicated configurations of products and financial structures. the internal auditor needs to stay abreast if you are to add value and help your organization accomplish its objectives while bringing a systematic and disciplined approach to risk management, control and governance. and the answer is training, and learning new technical skills. i thank you once again.

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