Supervision

In an environment of rapid changes where new risks continue to emerge due to the integration in global financial markets, it is paramount that the financial system of the nation is well preserved in order to support the growth of the economy. Thus to maintain a stable financial system, besides an effective regulatory framework, it is critical to sustain safety and soundness of the financial institutions. This is to avoid banking failures that may have adverse consequences on the economic activities.

The responsibility to ensure safety, soundness and robustness of the financial institutions lies with the supervision functions in Bank Negara Malaysia. In continuing to achieve a higher level of efficiency and effectiveness in performing the supervision role, Bank Negara Malaysia had conducted a holistic review of the financial supervisory and regulatory functions to ensure that the departments continue to support the achievements of the strategic results and the desired outcomes of Bank Negara Malaysia. The realignment exercise particularly has resulted in supervision departments playing the supervisory role along the functional lines and types of institutions; a transition from the previous sector specific demarcation of responsibilities. This is intended to achieve a more integrated and holistic supervisory approach with the ability to identify emerging trends and vulnerabilities and to be able to understand the dynamics of inter-relation of various departments and functions.

The function of the Supervision Sector is to develop, enhance and implement a sustainable, progressive and robust risk based supervision framework on respective financial institutions under their purview, to ensure the safety and soundness of these institutions in the adoption of best practices, sound governance and proper risk management. The responsibilities of the respective Supervision Departments are as follows:

• Financial Conglomerates Supervision: Supervision of domestic financial conglomerates
• Banking Supervision: Supervision of foreign banks, stand-alone investment banks and all Islamic banks including Islamic banking subsidiaries of domestic banks
• Insurance and Takaful Supervision: Supervision of insurance companies, reinsurance companies, takaful operators, retakaful operators as well as international takaful operators

While the sector specific supervisory approach is retained, a matrix reporting framework is adopted for the supervision of the financial institutions that are part of financial conglomerates. This is to enable an integrated approach to supervision and assessment of the risk profile to be undertaken on a group basis across the banking and insurance sectors.

In view of the increase in complexity of banking activities, emergence of new risk factors and continuous change in financial landscape, there is a need for financial risk expertise to undertake risk assessment both at individual institution level as well as on a system-wide basis. Therefore, dedicated specialised risk units on credit, market, operational, insurance and technology risks have been established in the supervision departments to serve both the regulation and supervision sectors. Through monitoring and examination of developments and trends of risks in the financial system, these units provide input and support to policy development, supervisory functions and macro-prudential surveillance on risk management practices.