this is to make certain that each financial institution has an effective risk management system in place to identify, measure, monitor, and control the risks to which the institution is exposed. to assist financial institutions in their efforts, the bank of thailand has provided sound - practice guidelines to local banking industry in a number of important areas such as corporate governance expectations, operational risk management, operational loss event collection, and security of electronic financial services. we will continue to provide guidance to assist our institutions. in addition, through the supervisory process, we will continue to look for weaknesses in our supervised institutions that expose them to potential fraud. while the bank of thailand is here to support institutions in this manner, please keep in mind that the primary responsibility for fraud prevention remains with the board of directors and management. i would be remiss in not addressing the upcoming launch of the revised basel capital accord. basel ii, as it is more commonly known, establishes expectations for financial institutions ’ risk management processes. in addition to requiring an explicit calculation of capital requirements for credit and operational risk, basel ii requires institutions to have robust consolidated risk management processes. institutions are expected to ensure that they have adequate capital for all other risks as well. through the supervisory process, regulators may also require additional capital for institutions whose risk management processes are not fully compliant. institutions can best address the expectations of basel ii by maintaining or establishing sound risk management processes. in thailand, the implementation of basel ii will start at the end of this year, and the preparation for its implementation is progressing on schedule. as our institutions complete the implementation of basel ii, i firmly believe that we will see a commensurate improvement in the quality of risk management among our banks, particularly in the operational risk area. to conclude, i would like to reiterate the importance of preventive measures to combat fraud, and i applaud your efforts in holding a conference on this topic as it shows that you place a high degree of importance in this area. while no institution can ever be expected to be completely fraud proof, institutions maintaining key elements i discussed will have taken a big step towards fraud mitigation and avoidance. i wish you great success for this seminar. i hope you accomplish your objectives and i know you will all take a lot of valuable information from this timely and meaningful event. thank you again for inviting me to join you today and thank you very much for your attention.

tarisa watanagase : mitigating fraud risk in financial institutions keynote address by dr tarisa watanagase, governor of the bank of thailand, at the seminar on “ mitigating fraud risk in financial institutions ”, bangkok, 29 april 2008. * * * khun kaisri, distinguished guests, it is my great pleasure to join you at this seminar on “ mitigating fraud risk in financial institutions ”, hosted by kpmg thailand. i would also like to thank the host for giving me this important opportunity to share the views of the bank of thailand on this topic. the globalization of the financial services industry, the increased sophistication and complexity of financial institutions and their services, and the ongoing advancement of technology continue to introduce new risks and opportunities for fraud. the pace and complexity of these advances have vastly accelerated beyond the risk associated with traditional credit and market risk activities. one of those emerging risks in financial institutions is fraud risk, which needs to be effectively controlled through effective governance and sound operational risk management processes. fraud risk in financial institutions has increased as perpetrators use advanced innovation and technology to identify and exploit weaknesses in banks ’ it systems, databases, and delivery channels, including atms and the internet. financial institutions must take care to ensure that system security measures are effective as a means to combat fraud. fraud can occur in a variety of ways : the inappropriate actions of a rogue employee can cause huge losses ; hackers can access a bank ’ s mainframe or databases, which in the past few years, has resulted in increasing losses due to the theft of confidential customers ’ information. depositors affected by atm or internet banking fraud also continue to increase. although fraud is impossible to fully prevent, financial institutions can reduce the probability of fraud occurrence and minimize losses with stronger oversight and tighter controls. this leads me to the bank of thailand ’ s views on the critical elements for fraud prevention. there are three critical elements that all institutions must possess to most effectively combat fraud : strong corporate governance, up to date systems and processes, and effective internal controls and risk management. the first and most important element is strong corporate governance. today, more than ever, boards of directors and senior management must provide close monitoring and oversight as the business activities of their institutions are increasingly complex and as the level of sophistication of their customers continues to increase. in almost every case where fraud has resulted in huge losses, ineffective corporate governance was identified as one of the primary causes.