Speaking at the A50 Australian Economic Forum in Sydney on Friday, APRA chairman Wayne Byres said financial services firms must balance their investment between existing and emerging technologies.
"Companies must continue investment in existing technology platforms while at the same time putting money into new technology which may well replace it," Mr Byres said.
"This conundrum exists for all firms we supervise, and the issue is going to rise in importance as time goes by."
While the Australian financial sector has been quick to adapt new technology as it has emerged, large parts of financial firms' core operating platforms is still based on technology that is "increasingly dated, and not as integrated as it needs to be".
"Particularly with the rise of fintech and potential disruptors, the temptation in the current environment is to devote a larger proportion of any investment budget to shiny new toys at the front end that excite the customer," Mr Byres said.
The risk, Mr Byres said, is that investment into new technology could defer maintenance of back-office functions that "make sure the customers’ transactions actually get processed and recorded correctly".
"As a supervisor, we are very keen to see investment in new technology by financial firms, because we think it offers considerable benefit to the soundness, efficiency and competitiveness of the financial system," he said.
"The important thing for us is to make sure investment budgets are expanding to accommodate that, and it is not simply funded by a diversion of resources from other essential tasks."
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