(SINGAPORE) Asian countries must not let their guard down while there are possible risks to their economies, the chief of the Monetary Authority of Singapore (MAS) warned yesterday.

The caution must continue even though the region has leaped back well from the Asian financial crisis of 10 years ago, he said.

'Asia is certainly more resilient now but, I would argue, needs to remain vigilant,' said Heng Swee Keat, managing director of MAS, at a risk management conference organised by the Berkeley-NUS Risk Management Institute.

Mr Heng cited the example of how the surge in capital flows into this region will have to be efficiently managed so that they do not pose a risk to financial stability.

'Indeed, it is in times of apparent tranquility that we need to look for the potential risk areas and plan for contingencies,' he pointed out, noting that investors are aware that the current benign global environment of low inflation, low risk premiums and low volatility in financial markets has been unusually long.

Mr Heng's comments came after MAS board chairman Senior Minister Goh Chok Tong said in a BBC TV interview on Thursday that he did not see a financial crisis coming, but investors had to remain cautious.

Mr Heng noted that although management of risks has improved significantly over the years, the perils posed by new, complex forms of financial instruments are not entirely clear.

'For instance, with the increasing complexity of financial instruments and the use of embedded leverage, investors may not be fully aware of their exposure to a particular type of risk,' he said. 'How these risks interact, especially in a stressful event, is not entirely clear.'

MAS, as a regulator, now faces the challenge of allowing innovation and capital flows to take place, but at the same time has to ensure that appropriate risk management practices are in place, he said. 'We adopt a risk-focused supervisory approach, one that is responsive to industry developments and welcoming of industry partnership,' he explained.

To that end, he said MAS is working with fellow regulators and market participants to build up risk management expertise. So, with the intention of cultivating risk management professionals, $20 million will be set aside to fund the studies of executives and fresh graduates in specialised doctorate programmes in finance, MAS announced yesterday.

The new doctorate scholarship programme (DSP) is a fully funded scholarship for candidates pursuing careers as financial researchers at local universities or research institutes.

People skilled in financial risk management, financial engineering and economics are expected to be cultivated from this initiative, with up to 50 DSP scholarships expected to be awarded in the next five years.

Mr Heng said: 'Our efforts recognise and build on the fact that academia will continue to play a catalytic role in expanding the fields of financial practice.'