MALAYSIAN SUPERVISOR PROPOSES NEW RISK-BASED REGIME FOR INSURERS

Bank Negara, the regulatory authority for Malaysia’s financial services sector, is set to reward insurers that can demonstrate a greater use of risk management by introducing a risk-based capital framework. Under the proposal, insurers will be granted a lower capital charge if they can prove they are working to robust risk management guidelines. The new regime will bring Malaysia into line with other international markets, echoing the regulatory likes of the Solvency II Directive in Europe and the Bank of International Settlements Basel II Accord. Commenting on the new framework, Bank Negara deputy governor Datuk Mohd Razif Abd Kadir said: “There is a need for a comprehensive risk management system for insurance companies in Malaysia. Under the framework, insurance companies that have good risk management systems will be rewarded. This would further strengthen the incentives for improved risk management practices of insurance companies.” Responsibility for adoption of and adherence to risk management processes will lie with senior staff, said the deputy governor adding that “this will ensure that the financial system is able to continuously adapt whilst maintaining a clear focus on sound risk management that will continue to be a critical pillar to support a resilient insurance industry”. The deputy governor also stressed the importance of more adherence to corporate governance principles under the new regime, adding that the rewards for adoption of more risk management practices will include the freedom of a “light regulatory touch”.