monitoring activities must be supported by information systems that provide senior managers and directors with timely reports on the financial condition, operating performance, and risk exposure of the institution. fourth, establishing and maintaining an effective system of controls, including the enforcement of official lines of authority and the appropriate separation of duties such as trading, custodial, and back - office is one of management ’ s more important responsibilities. a properly structured system of internal controls promote effective operations and reliable financial and regulatory reporting, safeguards assets, and helps to ensure compliance with relevant laws, regulations, and institutional policies. given the importance of appropriate internal controls, the results of audits or reviews should be adequately documented, as should management ’ s responses to them. bis central bankers ’ speeches fifth, the risk management function should be institutionalized to supervise overall risk management at the bank. ideally, overall risk management function should be independent from those who take or accept risk on behalf of the institution. ladies and gentlemen! one would assume that these principles are fairly simple to understand and practice, however, banks failures of the past & the recent global financial crisis highlight weaknesses / vulnerabilities in the risk management systems / practices of the financial industry. following are some of the key lessons which should not be overlooked, to ensure effective risk management at banks : • boards need to be more actively engaged and involved in risk policy setting and governance, and spend more focused, higher - quality time on risk issues. • the responsibilities and influence of chief risk officers ( cros ) need to be elevated and strengthened with cros actively participating in business strategy and planning as opposed to having only veto power over decisions that adversely impact risk. the risk function is not in place to manage risk, but to make sure that risks are managed. ” • banks need to align pay to risk - adjusted performance • there is a need to institutionalize an appropriate risk culture throughout the organization, where risk is everyone ’ s business from the board to the front line. • banks need to improve the transparency, quality, accuracy and timeliness of information to support risk management. • institute enterprise wide risk management systems instead of managing the risks in silos. • use both qualitative and quantitative techniques with varied assumptions instead of blindly following the models. ladies and gentlemen! i would now like to give a brief overview of some of the main steps taken by pakistan to improve the soundness and stability of its banking system. over the years, our banking sector has witnessed a transformation from

financing, structured financial derivatives, and private equity, retail banking and islamic mortgages. • develop suitable frameworks and applications of pls - based products. at present, the share of equity investment in if ranges from 0 to 24 % of the banking books of islamic banks. pls modalities like mudaraba and musharaka, based on equity partnership arrangements, offer interesting options for innovation. however, weaknesses in legal, regulatory and policy frameworks have impeded their growth. some of the constraints of its effective application 5 include ( i ) equity holders and investors ’ aversion to risk, given the uncertainties over return in pls arrangements, ( ii ) absence of effective property rights in most countries, ( iii ) long term nature of pls financing and ( iv ) higher taxation, compared to interest income, on equity transactions underlying pls arrangements. nevertheless, promoting pls arrangements will not only offer new products but will also address the serious mismatch of assets and liabilities which has aggravated due to the heavy reliance of ifis on short - term, low profit and fixed income assets. 15. in conclusion, it has to be recognized that if services have been transformed from being a peripheral activity to a sizeable industry which is attracting global interest. evidence and arguments presented above make the case that financial globalization will foster if and given the inherent features and richness of islamic principles, modalities and products ’ growth in if will be beneficial for supporting the process of regional and global financial deepening. although currently the size of if is small relative to the global financial system, it has promising growth prospects. well - developed and integrated islamic money, capital, and foreign exchange markets will not only be beneficial for borrowers and institutional investors, they can also further enhance the stability of if institutions, providing them with improved portfolio, liquidity and risk management tools. the challenge for the industry is to consolidate “ lack of profit loss sharing in islamic banking ; management and control imbalances ”, humayon dar and john r. presley ( 2001 ). itself to be able to better compete with global players through achieving scale, efficiency and cost effectiveness in addition to rapidly building its capacities to standardize regulation and supervision, and accounting practices, while strengthening the governance of the industry.