Considering the fiduciary responsibility of the Boards towards their stakeholders, and in the interest of wider financial system stability, the Central Bank issued directions on corporate governance in December 2007, requiring the banks to streamline their governance practices commencing from 2008. 3.2 The implementation of the Basel II framework from January 2008 is another enhancement to the regulatory structure, which requires the financial industry to have a better risk management framework. Most of the leading banks have set up independent risk management and compliance divisions to monitor bank-wide risks. These institutions should now focus in moving forward to implement advanced approaches under Basel II framework by setting up data warehouses and sophisticated IT systems in order to have better risk management and compliance. Similarly, the adoption of International Accounting Standards such as IAS 32 & 39 and IFRS 7, which deal with disclosures, presentation, recognition and measurement of financial instruments, also highlight the need for an integrated risk management, disclosures and compliance. There is, however, reluctance by banks to build robust IT infrastructure and advanced IT frameworks due to the high cost of investment and the time it would take to reap the benefits. It is important that banks and financial institutions change this mindset to pave the way for a GRC management and also to avoid operational losses due to product failures and frauds. Risks arising in these areas could spread beyond the financial institution concerned and have the potential to affect the entire industry. 4.
We will need a flexible economy that allows to redirect resources rapidly and efficiently from those sectors that are losing appeal to those that are gaining it; a financial system able to weigh the risks and help new ventures thrive; and we must double our efforts to improve our productivity, and so on. The good news is, as I just mentioned, we have an appropriate macroeconomic policy framework to confront changes in the external environment and an economy that, having made significant adjustments, is now free of significant imbalances. This is why I believe that, never forgetting that we are a small and very open economy and therefore ever exposed to external shocks, we can look into the future with confidence. Thank you. 6  BIS central bankers’ speeches