The Australian Reserve has changed its policy toward outsourcing for New Zealand banks. New Zealand's major banks are now Australian owned and the Reserve Bank is worried outsourcing core services such as payment and transaction settlement may disrupt the financial system and harm the economy.
"While outsourcing of banks' business functions is increasingly common and often a sensible business practice, it can expose banks and the financial system to new or increased risks that must be managed appropriately," says Reserve Bank deputy governor Adrian Orr.
"Bank and bank service-provider failures are low-probability events, but they can have a potentially high and immediate impact economy-wide."
The draft outsourcing policy aims to provide safeguards to the stability of the New Zealand banking system against the possibility of such occurrences, he says. The Reserve Bank will be working with each bank to implement the draft policy taking into account its individual circumstances and investment cycles.