KUALA LUMPUR, Dec 8 — The outcome and success of any reform strategies will depend on the prevailing circumstances and the state of readiness of the financial system and the overall economy, says Bank Negara Malaysia Governor Tan Sri Zeti Akhtar Aziz.

She said as China undertook reforms, it has every potential to emerge stronger and to continue its economic success that is now a well recognised milestone of this century and for the years to come.

Citing Malaysia as a case, Zeti (picture) said the country has adopted a conscious effort to put in place the financial and economic pre-conditions so as to enable the country to benefit from such financial reforms involving the deregulation and liberalisation of the country’s financial system.

“It has been maintained that such deregulation and liberalisation will facilitate the development of more efficient and robust financial systems and that it would result in a more efficient allocation of financial resources across borders. 

“While such financial liberalisation may indeed bring such wide ranging benefits, it also brings with it increased risks that needs to be effectively managed,” the governor said at the 2013 China Business News Annual Meeting and Finance Summit in Beijing today.

Zeti said focus was first placed on strengthening the institutional capacity of domestic financial intermediaries so as to narrow the performance gap between domestic and international financial intermediaries. 

“As the Malaysian financial system evolved to become more complex, sophisticated and diversified, the regulatory and supervisory approach has correspondingly evolved from detailed and prescriptive rules to a risk-based approach that combined greater supervisory judgment and intensity with high-level principles of sound practice,” she said.

In addition, this is complemented with effective surveillance that is forward looking and focused on addressing the risks to overall financial stability.

Zeti said the more competitive environment generated also became an important driver of productivity gains, customer centricity and innovation in the financial system.

Besides, various other key financial infrastructures were also put in place to enhance the efficient functioning of the intermediation process of the overall financial system.

Zeti said this included the infrastructure to support robust payment and settlement systems.

“Underpinning the financial sector growth was also the development of a more robust surveillance, regulatory and supervisory framework,” Zeti said.

“The implementation of these laws have strengthened Malaysia’s financial sector by providing a consistent approach to regulation and supervision and enhancing the central bank’s power to take timely intervention action in relation to financial intermediation activities that occur outside the banking system. 

“In this recent decade, the strengthened institutional arrangements in Malaysia to promote financial stability have contributed towards addressing this important gap,” she added. 

In building a stable and resilient financial system, she said the central bank has accorded greater emphasis on financial inclusion.

This has included enhancing access to the unserved sectors, as well as, the introduction of highly innovative delivery channels such as retail outlets and post offices as third-party agents to widen the outreach of financial services, she said.

Zeti said these have worked in tandem to ensure that all members of society, including the most vulnerable groups, have the opportunity to participate in the formal financial system.

“Concurrently, continuous efforts are being undertaken to promote consumer protection and education, in order to ensure fair and responsible market practices and conduct, and that consumers are better equipped with the necessary financial knowledge to make informed decisions,” said the governor.

Zeti said the next phase of transformation would continue to promote inclusive access to financial services, encourage the development of the range of financial institutions, products and markets that would facilitate and drive the development of new domestic sources of growth, and accelerate Malaysia’s regional and international connectivity.

She said the use of technology would also be leveraged in this new environment to enhance the efficiency of financial transactions through electronic means.

Zeti said the implementation of these strategies would also be accompanied by an effective regulatory and supervisory regime that would be appropriate for a more regionally- and internationally-connected financial sector. 

“There has been tremendous payoffs from the development of our financial system, its restructuring, rationalisation, deregulation and subsequent liberalisation,” she added. — Bernama