In addition to long-standing issues that are awaiting resolution such as conflicts in the Middle East, tensions in the Korean Peninsula, and Brexit, new sources of potentially abiding fragility keep adding on to this list. The US-Russia conflict, Iran nuclear sanction, the militarization of the South China Sea, and the increased cyber-attacks by both state- and nonstate-actors, are some of the issues that have emerged over the past few years. While heightening geopolitical risks have not led to a serious market correction or slowdown in global economic activities, persistent geopolitical risks still warrant close monitoring, as these could heighten volatility in the financial market and commodity prices, especially that of oil. The last source of risk that I would like to highlight is on the domestic front. While financial stability remains sound overall, there are some pockets of risk that might pose vulnerabilities to financial stability going forward. The prolonged period of low 2  interest rate environment leads to search-for-yield and underpricing of risks. This is especially challenging in a multi-regulator environment, since increased regulations by one agency is likely to simply push the potentially risky financial activities out of the agency’s regulatory umbrella. The evidence of this is presented by risk areas that span across all regulatory bodies’ responsibilities: delayed deleveraging of household debts; large expansion of foreign investment funds with high concentration in some emerging economies; saving cooperatives’ rapidly growing deposits; maturity mismatch of corporate borrowers; and rapid growth of corporate bonds, especially unrated bonds.

The fact that the reason for many virtual currencies is to skirt the formal financial system adds further to the reservations of many. On this front, the Financial Action Task Force (FATF) has published a number of reports on risks and guidance for risk-based approach in mitigating money laundering risks associated with technology such as virtual assets and internet-based payment services. Understanding, monitoring and supervising virtual assets would require development of new techniques and methods. Last but not least, in watching out for new and emerging risks, we must not forget that old risks may rear its head in new ways. There are two issues in relation to this: Firstly, while the number of terrorist attacks have declined over the past few years, the nature of terrorism and terrorism financing have evolved. New modus operandi such as lone-wolf attacks and remote terrorist cells, as well as availability of new products in the financial sector, such as prepaid cards and mobile banking, has given rise to new patterns and methods of financing terrorism that are different from a decade ago. We must not forget that dealing with these financial crimes should remain a high priority due to the direct and immediate human costs involved. Secondly, we must also not forget that even with the emergence of the technologies described earlier, we are still very much reliant on cash. Demand for cash worldwide continues to rise. For Malaysia, currency in circulation has increased by around 150% over the past decade.