Nor Shamsiah Mohd Yunus: Innovation in a disruptive era Remarks by Ms Nor Shamsiah Mohd Yunus, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Malaysian Insurance Institute (MII) Summit "Innovation in a Disruptive Era", Kuala Lumpur, 28 September 2018. * * * I would like to congratulate the Malaysian Insurance Institute for organising this summit. This is my inaugural engagement with the industry and it gives me great pleasure to be able to address all of you today. In line with the theme of this conference, my remarks today will cover three things: 1. Firstly, the role of insurance within the context of key developments that are shaping our economy; 2. Secondly, how the Bank views and is responding to innovation in the insurance sector; and 3. Finally, some perspectives on our regulatory and supervisory focus moving forward. Role of insurance in an economy Insurance plays a core function in the modern economy and the financial system. There is a positive relationship between economic growth and insurance development. This is borne out by studies which have shown that more developed markets have a higher share of insurance in the economy. The role of insurance in the economy is worth restating, particularly given the economic and social challenges that we face today. A core purpose of insurance is providing protection against individual and business risks through risk transfer and pooling. This improves individual welfare, and supports consumption and investment activities.
Banks should take advantage of opportunities to raise lossabsorbing capital, and should recognise the importance of using profits to rebuild capital rather than pay out higher dividends and compensation. But we must not forget the principle underlying the Basel approach: asking banks to maintain a buffer of capital above the minimum requirement allows them to run the buffer down in circumstances like the present. Rebuilding the buffer is a task for the future. So even though the Bank of England would have preferred an agreement to set capital ratios at higher levels in the long run, we have no intention of asking UK banks to adopt a faster timetable for implementation of Basel III. That logic should apply to any reforms we choose to implement. We should not expect to change the financial system for the better overnight. Rather we need radical reforms that will give us a much more robust system in the long run, accepting that it may take a period of many years to get there. As with a bank levy, it is no criticism of Basel III to say that it is not a “silver bullet”. The difficulty of identifying and calibrating the difference between the private and social costs of maturity transformation means that there is merit in having a basket of different measures to rein in excessive risk-taking. In the area of financial stability, it makes sense to have both belt and braces. 6.