Future global prosperity is by no means assured. Systemic global risks such as resource scarcity, water security and climate change challenges are exposing the underlying fragility of our global system, and represent the next wave of crisis. The world today seems woefully unprepared to deal with the most extreme risks facing our planet. As our leaders look to the future to prepare for decades of growth, a reliable system of global governance must be implemented with a strong foundation to deal with emerging and systemic risks.

The global economy has still not recovered from the 2008 crisis. Emerging economies are now driving the growth, but there are even concerns of an impending stagnation in these nations. Advanced economies have now resorted to liquidity easing measures to resolve the crisis, however fiscal discipline is a challenge unto itself. Labor market conditions are likely to remain challenging in many of the advanced economies. Delays in the United States raising its federal debt ceiling could increase the risk of financial market disruptions, and compound a loss in consumer and business confidence. The key short-term challenge for emerging and developing economies is how to appropriately calibrate macroeconomic policies to address the significant downside risks from advanced economies.

The US Debt ceiling issue may emerge again in the last quarter of 2013. The concerns on account of possible tapering of stimulus measures by US Federal Reserve have created huge swings in the financial markets of developing economies. The risk of stagflation and financial markets volatility challenges the growth and financial stability in Asian and emerging economies. The middle-east tensions, particularly from Syria and Egypt have kept the oil price at high levels and could threaten global economic recovery. In emerging market economies, policymakers should be ready to effectively deal with trade declines and a high volatility of capital flows. If we look closely, there are definite signs that we are now in the second phase of the global financial crisis. Lessons learnt from the initial wave of the crisis should be used effectively to reduce the impact on the global economy. And this is exactly where a firm global governance framework will come into play. If a transparent and fool - proof governance system is in place, the new wave will definitely pass without causing major damage. The key short-term challenge for emerging and developing economies is how to appropriately calibrate macroeconomic policies to address the significant downside risks from advanced economies. Emerging and developing economies should also prepare themselves to address the risks impacting their financial stability arising from tapering of stimulus measures by US Federal Reserve.

The financial services industry has also been subject to more challenges such as the Anti- Money Laundering (AML) Compliance issues and the LIBOR Rigging Issue. In August 2012, there were allegations that the Standard Chartered banking unit violated US anti-money laundering laws by scheming with Iran to hide more than US$250 billion worth of transactions. In July 2012, HSBC was alleged to have acted as financier to clients seeking to route shadowy funds from the world's most secretive corners such as Mexico, Iran and the Cayman Islands etc. With globalization and the dissolution of exchange control barriers combined with more sophisticated avenues of investments like derivatives and mutual funds taking shape, tracking suspicious transactions has become more challenging. Banks and other financial institutions need to be more diligent and vigilant in monitoring these threats. Corporate mismanagement counters sound governance principles. It has to be understood that a firm can exist in the long run only with an unambiguous corporate governance framework in place.

The LIBOR rigging issue also shook the financial industry. Traders at several banks may have engaged in insider trading, and banks may have been responsible for a manipulation during the 2008 crisis, while concerned about their financial condition, which required them to pay higher interest rates to borrow from other banks. The concerns of a government bailout could have encouraged such actions. Recent developments have shown that it has become a challenge for financial institutions to prove they are not guilty. In the chapters to follow, let us recap the current global financial crisis, and see how they have resulted in various regulatory reforms in place.

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