Integrated approach to banking, insurance sectors prove effective

BANK Negara Malaysia's integrated approach to regulate both the banking and insurance sectors has proven more effective compared to some European countries, where insurers resist plans to give their central banks more power.

Speaking at the 21st Federation of AFRO-Asian Insurers & Reinsurers conference in Kuala Lumpur yesterday, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the recent global crisis had exposed serious shortcomings in the regulatory structure of the financial system.

Increasingly, she said, governments worldwide are considering an integrated approach to regulate the insurance industry together with the other segments of the financial sector.

France and Germany have recently announced that they are mulling to place the supervisory role of the insurance sector with the central bank, Zeti said.

This has, however, drawn resistance from insurers on the grounds that "the concentration of responsibilities would create new conflicts of interest for the financial sector".

"I would like to say that Bank Negara has been the supervisory authority of the banking industry since its establishment in 1959, and for the insurance industry since 1988," Zeti said.

"This integrated approach within the central bank has enabled us to form a more complete assessment of the risks to financial stability while ensuring consistency in the treatment of risks across the different industries to avoid risks to the overall financial stability," the governor said.

This would result in more consistent standards for regulation as the insurance sector is becoming increasingly significant in the global financial system.

"The proliferation of conglomerate arrangements have also increased the need for more consistent regulatory approaches across industry boundaries to reduce the prospect of regulatory arbitrage and inefficiencies," Zeti said.