The financial services sector should not be tempted by "shiny new [fintech] toys", and must continue to invest in maintenance of core technology, says APRA chairman Wayne Byres.
Speaking at the A50 Australian Economic Forum in Sydney on Friday, Byres praised financial services firms for being "pretty quick to adapt new technology", but warned firms that they must learn to balance their investment between new and existing technology.
"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, and perhaps defer a bit of maintenance on the back office functions that make sure customers' transactions actually get processed and recorded correctly," Byres said.
Byres added that large parts of financial firms' core operating platforms are still based on technology that is "increasingly dated, and not as integrated as it needs to be."
"The conundrum exists for all firms we supervise, and the issue is going to rise in importance as times go by. 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," he said.
The remarks come alongside comments from the International Organisation of Securities Commissions (IOSCO), which in its new report, highlights the important interaction between financial technology and securities market regulation.
The IOSCO Research Report on Financial Technology notes several risks associated with fintech, including the rise of unlicensed cross-board activity, programming errors in algorithms that underlie automation, and breaches in cyber security. The report also flags the failure of financial firms to "know-the-client" for reasons of anti-laundering and fraud control.
"Opening an account through the internet affords clients an opportunity to enter false information that masks their true identity. Similarly, financial firms using automated profiling processes can run the risk of failing to "know-the-client" well enough to make suitable investment recommendations," the report noted.
In their recommendations, IOSCO says that regulators should address the challenges created by fintech through international co-operation and the exchange of information.