##isations. i can only encourage eiopa to press on this issue and ensure that firms that would not be authorised in one country do not find a home in another. two of the panel discussions today focus on the customer in tomorrow ’ s world. let me comment on the role of technological innovation in distribution channels. first, more widespread deployment of online distribution channels has the potential to reduce costs, expand access to insurance products and improve consumer convenience. however, at the same time, online distribution requires a parallel increase in attention to cyber risk. the international association of insurance supervisors has recently discussed this topic, highlighting that the foundation of the insurance business is trust, and that trust could be irrevocably shaken if sensitive data were lost or claims payments disrupted. our assessment at the central bank of ireland is that cyber risks pose not only financial and reputational risks for individual insurance firms but that there are wider consequences for prudential supervision, consumer protection and financial stability. bis central bankers ’ speeches second, the automation of advice to potential customers is a promising development. however, as recently highlighted by the joint committee of the european supervisory authorities, there are pros and cons to these tools from a consumer perspective. the potential benefits include lower costs, increased convenience and greater consistency in advice. the primary disadvantage is the risk of an unsuitable final recommendation due to the lack of a human advisor. to represent a net gain for consumers, the design of automated advice systems must ensure that consumers are provided with clear, accurate and relevant information and recommended suitable products appropriate to their needs. the properties of suitability and transparency are among the most important principles underpinning the central bank ’ s consumer protection framework and are increasingly important in this period of rapid technological innovation. one of the panel sessions will focus on global and european financial stability. in the international regulatory community, there is increasing interest in the inter - relations between the insurance sector and the stability of the broader financial system. in one direction, excessive risk taking by insurance firms can be a source of financial instability, both directly and indirectly through the interconnections between the insurance sector, other financial intermediaries and financial markets. in the other direction, the insurance sector can make a positive contribution to financial stability, given the potential complementarities between the balance sheet structure of the insurance sector and the balance sheet structures of other sectors. much of the current risk discussion has focused on the implications of a protracted low interest rate environment for the insurance sector.

– irrespective of quality of counter party or credit • encouraging regulatory arbitrage by cherry picking • lack of incentives for credit risk mitigation techniques • not covering operational risk as time passed, some of the major international banks began using sophisticated models to measure risk. this was when a need was felt to upgrade the basel framework. therefore, the basel committee on banking supervision thought it desirable that the present accord is replaced by a more risksensitive framework. three pillars the new basel accord has its foundation on three mutually reinforcing pillars that allow banks and bank supervisors to evaluate properly the various risks that banks face and realign regulatory capital more closely with underlying risks. the first pillar is compatible with the credit risk, market risk and operational risk. the regulatory capital will be focused on these three risks. the second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bank. concurrently, it also casts responsibility on the supervisors to review and validate banks ’ risk measurement models. the third pillar on market discipline is used to leverage the influence that other market players can bring. this is aimed at improving the transparency in banks and improve reporting. issues and challenges having given you a brief overview of the current and proposed new framework, i shall now move on to the implementation challenges for the banks especially in a developing country like india. here, i would skip the methodological details and technical nitty - gritty associated with the new accord, and concentrate instead on more profound implications for the banking industry. issues and challenges while there is no second opinion regarding the purpose, necessity and usefulness of the proposed new accord - the techniques and methods suggested in the consultative document would pose considerable implementational challenges for the banks especially in a developing country like india. capital requirement : the new norms will almost invariably increase capital requirement in all banks across the board. although capital requirement for credit risk may go down due to adoption of more risk sensitive models - such advantage will be more than offset by additional capital charge for operational risk and increased capital requirement for market risk. this partly explains the current trend of consolidation in the banking industry. profitability : competition among banks for highly rated corporates needing lower amount of capital may exert pressure on already thinning interest spread. further, huge implementation cost may also impact profitability for smaller banks. risk management architecture : the new standards are an amalgam of international best practices and call for introduction of advanced risk management system with wider application throughout the organization.