000 companies. the research under way is expected to produce results that will be of help in the analyses and tests that will have to be carried out for the validation of the internal rating systems banks adopt. increasing the competitiveness of the italian banking system, and of the economy as a whole, requires continuous improvements in the methods used for granting and managing credit, and the development of the corporate finance services needed to foster small and medium - sized enterprises ’ access to the capital market. it is necessary to capitalize on italian banks ’ greatest strength : the wealth of information and relationships accumulated over the years in doing business with their customers and turn it to account in creating effective internal rating systems. i am sure that italian banks, faced with this new challenge in the most typical of all banking activities, the management of credit, will succeed in developing the instruments and mind - set needed by companies operating in markets that have been opened up to competition by the efforts over the last ten years of parliament, the regulatory authorities and intermediaries themselves.

regulators of an evolving financial landscape, we need to remain alert to the spawning of new ideas / trends in the markets, try and understand their scale, assess their potential to disrupt the market and consider interventions where and if necessary. for example, regulatory sandbox is one such initiative where pilot 2 / 7 bis - central bankers'speeches programs can be tested in a controlled environment without any fallouts. this ensures that regulations evolve concomitantly with new products / services rather than being preemptive or reactive to innovations. harmonised approach to regulations indian financial system is characterised by different types of financial institutions. many of these entities are niche players with varying risk profiles. therefore, they require differentiated regulatory treatment. while recognising the need to allow for differentiated regulatory treatment, we are increasingly looking to adopt the approach of " same activity ", " same risk ", and " same regulations ". this approach enhances our oversight capabilities by providing a holistic view of the activity across the financial system. it allows for identification of systemic risks, monitoring of cross - sectoral linkages, and initiation of pre - emptive measures to address potential vulnerabilities. however, let me reiterate a point i had made earlier1 that harmonisation does not mean prescribing uniform set of regulations. in fact harmonisation entails a risk - based perspective, wherein regulatory requirements are tailored to the specific risks associated with each type of financial entity and activity. the idea is that regulatory arbitrage can not be an option exercisable by the regulated entity. while we remain guided by these principles in framing regulations, it needs to be emphasized that in any maturing economy, the regulations must eventually graduate from a rule - based approach to a principle - based approach. the reserve bank too has been endeavouring to adopt principle - based regulations which means regulator would focus on setting broad principles, thereby allowing for a nuanced approach to risk management by the regulated entities. it helps in balancing flexibility with achieving regulatory objectives. however, an essential pre - requisite for the success of such an approach is a financial landscape which values discipline and compliance in both - letter and spirit. else, the flexibility available under a principle - based mechanism might be misused. therefore, in their own interest, the market players should support such regulatory endeavours through suitably strengthening their compliance culture and governance frameworks. emerging areas of regulatory focus now, let me focus on the emerging areas which are engaging our