Helping to reduce crime

Bank negara’s regulatory and supervisory activities also aim to reduce the scope for the regulated financial sector to be used for illegal purposes, including money laundering and financial crime.

This is important to preserve the integrity of, and public confidence in, the financial system.

Efforts in Malaysia have intensified in recent years to ensure the continued effectiveness of the legal infrastructure, systems and processes to promptly detect and prevent money laundering, terrorism financing and other illegal activities, in light of the more sophisticated and global nature of methods used to commit financial crime.

These initiatives contribute and demonstrate Malaysia’s continued commitment to global efforts to strengthen measures against financial crimes and reduce the illicit flows of funds.

Supervisory capacity and cooperation

In light of the expansion of domestic financial groups across borders as well as the growing presence of foreign financial institutions operating in Malaysia, Bank Negara initiated and actively supported more structured approaches to cooperation with other supervisory authorities.

In particular, it moved to better leverage on the role of supervisory colleges in informing supervisory assessments, coordinating supervisory activities and generally promoting more coherent supervisory frameworks for the cross-border operations of financial institutions.

During the year, the bank hosted an inaugural meeting of the college of supervisors for a regionally-active Malaysian financial group, which included the relevant host supervisors. In its capacity as host supervisor, the bank also participated in supervisory college meetings involving foreign financial institutions with operations in Malaysia.

These discussions have enabled the bank to form a more comprehensive view of the financial groups, which provided a deeper understanding of issues that concerned the authorities responsible for the supervision of entities within the group and how the group itself undertook group oversight and management of group-wide risks. Insights gained have also enabled Bank Negara to validate its assessments of the extent to which parent support and the centralisation of key functions present risks to regulated institutions in Malaysia. Moving forward, it intends to organise more frequent supervisory colleges.

On the domestic front, the bank continued to strengthen its cooperation with other domestic regulatory authorities.

This includes the coordination of supervisory activities with the Securities Commission on the supervision of investment banks and entities supervised by the SC that are part of financial groups.

The bank and PIDM also completed a review of the Strategic Alliance Agreement (SAA) between both agencies to further strengthen the existing cooperative arrangements and to reflect the expanded scope of collaboration following the enactment of the Malaysia Deposit Insurance Corporation Act 2011.

The enhanced SAA will, among others, provide for an enhanced scope and frequency of information sharing and improved coordination of intervention and resolution actions in respect of member institutions in line with the enhanced powers and responsibilities accorded to PIDM. The bank expects that the scope and intensity of its cooperation with other authorities will continue to evolve to preserve an effective supervisory system as the nature of financial intermediation evolves. The bank therefore places a high priority on building and maintaining effective relationships with other supervisory

authorities, and will continue to review and ensure the relevance and effectiveness of existing cooperative arrangements.

A broader programme to enhance the bank’s supervisory resources, processes and tools is also under way to: (i) further strengthen the bank’s stress testing capabilities; (ii) improve the allocation of supervisory resources to make more optimal use of specialised knowledge residing within the bank; (iii) enhance the efficiency and effectiveness of supervisory reporting through increased automation and more integrated

surveillance systems; (iv) implement an improved framework for the prioritisation and supervision of consumer conduct issues; and (v) strengthening the oversight of enforcement activities.

The bank expects to complete most of these initiatives in 2012.