Financial institutions – and in particular those with regional aspirations – must develop the capacity and capability to manage risks arising from cross-border operations. Given the greater complexity of business, boards and management will be confronted with more difficult and multi-dimensional challenges in driving strategy and in overseeing operations. This calls for greater emphasis on board and management composition and diversity in terms of skills and experience. Board members with experience in the areas of international banking and finance for instance, would be critical to help the institution in managing the new operating environment including new business models, while guarding against the attendant risks. The growth of the regional financial markets will also accompany such financial integration and cross border banking and investment activity. This could open up new sources of revenues for the financial sector, at the same time, new risks that may require upgraded skills and infrastructure to manage. Policymakers will try to harness the economic and  BIS central bankers’ speeches  5  financial benefits these bring while ensuring that risks will be well managed. For financial institutions, there will be a need to enhance capacity in operations and connectivity – developing the necessary infrastructure, systems, counterparty lines and settlement capability across the region. Risk management also needs to be enhanced correspondingly, capability of assessing market and credit risks which could be challenged by different liquidity conditions and market environments. Financial institutions must also be ready and able to comply with diverse legal and regulatory expectations in each country of operation.
With the conclusion of ABIF, ASEAN members are now pursuing reciprocal bilateral agreements, which will detail measures on market access and operational flexibilities for QABs in the respective countries. The future looks bright. Last December, Malaysia and Indonesia signed a Heads of Agreement which will provide opportunities for banks from both economies to expand their scope of operations and businesses in each other’s markets. As such, we should witness an expanding network of bilateral agreements in the coming years. In line with its focus on the principles of inclusiveness, reciprocity and mutual benefit, ABIF allows member countries to manage systematically the integration process, while taking into consideration, national development objectives and financial stability. Countries which are ready to proceed will be able to start the integration process early and at their own pace. Other countries will aspire to meet the preconditions and will be supported by the region’s collective commitment to capacity building efforts, so that they can progress steadily towards achieving a state of readiness to enable full participation in the integration process. In the insurance sector, continuing progress is being made to strengthen insurance regulatory and supervisory frameworks in the region through observance of the Insurance Core Principles as an important precondition for more integrated insurance markets. This process has been supported by the ASEAN Insurance Regulators forum and its training arm. Going forward, progressive liberalisation of the insurance sector in the region will be guided by the ASEAN Insurance Integration Framework.