There are two aspects to this: we recognise that life insurers can be an important source of long-term, stable financing for corporates, infrastructure and mortgages – this is an important function that we want to see maintained; but we also must consider the wider financial stability angles, avoiding undue influence on the asset allocation behaviour of insurers. Solvency II should not materially drive investment decision making except in so far as it helps to make certain that insurers fully understand the risks that they take. The Prudent Person Principle will seek to ensure that the industry understands and is capable of managing its investment risks. Specifically, insurers must be able to demonstrate that they can properly identify, measure, monitor, manage, control and report on their investment risks and not place reliance upon information provided by third parties. Investment choices should be made in the best interest of policy holders and beneficiaries. Those running a business are best placed to make business decisions. That being said, the PRA does have the benefit of perspective. The PRA has the ability to look across the industry and can also draw upon the expertise of specialists working across the different areas of the Bank of England. Whilst on the subject of the role of management, we understand that there has been some uncertainty around our expectations of the non-executive director role for firms that have internal risk models. Non-executive board members need not be technical experts in risk modelling.
There is neither an effective platform nor an established framework for policy coordination or for crisis containment, management and resolution. There is also no true global lender of last resort as the IMF itself has only limited resources. This has led to the rise of governance innovations amongst many economies, including Malaysia and its neighbours. Since the Asian Financial Crisis of 1997, various initiatives have fostered stronger regional cooperation, including information sharing and alternative liquidity support arrangements that are bilateral or regional in scope. While these efforts have reinforced the region’s defences against external shocks, they have not reduced the vulnerability of individual economies to external shocks. Were the fault lines in the global monetary and financial system to widen, there is no guarantee that emerging economies like ours will not be dragged into those crevices. Given the lack of global initiatives to close those fault lines, what economies like Malaysia must do is to ensure that our house is strong. We must build-up our defences and have the resilience to withstand the volatility and headwinds created by the global economic and financial environment. One important source of that resilience is having sound financial governance at all levels of our society: the government, the corporate sector and the household sector. Financial governance: foundation of sustainable economic growth Financial governance sets the stage for sound financial decision-making. Broadly defined, strong financial governance is a sum of many parts including strong institutions, efficient processes, and effective rules, regulations and norms.