By Nia Williams

CALGARY (Reuters) - The Bank of Canada wants upgrades made to the core payments systems used in the country's financial system in order to make them more efficient and competitive, a top central bank official said on Friday.

Senior Deputy Governor Carolyn Wilkins also said new technologies in financial services had the potential to transform the financial system but stressed institutions and policymakers must work together to guard against potential risks.

"While fintech innovations promise to solve some current problems, they could also create new ones," Wilkins said in a prepared text of the speech.

She said there were risks of an "excessive concentration" of payment service providers, which could become a competition issue. She also warned new players could become important to the system but not be covered by current regulation.

On Thursday, the central bank confirmed that it is experimenting with a payments system based on the distributed-ledger technology behind bitcoin, the digital currency.

Distributed ledger technology creates a shared database in which participants can trace every transaction and is closely associated with the digital currency. But Wilkins said the potential is stronger for other applications, pointing to test cases related to payments and post-trade processes.

Several issues with the technology need to be addressed before its benefits can be realized, such as gaining regulatory acceptance and legal compliance, she added.

Wilkins said in a question and answer session following her speech that such technology being implemented into the core payment system is "a long way off" and that the next generation of payments will likely be based on another technology.

Wilkins said the bank is studying digital currencies closely and is researching the conceptual merits of issuing electronic money itself.

For the time being, the bank's priority is to see improvements made to the Large Value Transfer System and Automated Clearing Settlement System that the bank oversees, she said. The systems are operated by Payments Canada, the organization Wilkins addressed in Calgary.

"These systems have served us well, but both require investments that are needed to fully meet our oversight requirements," she said.

Richer data on transactions in both systems needs to be collected and ideally make the two interoperable, Wilkins said.

Wilkins did not discuss monetary policy in her speech. The Bank of Canada is widely expected to hold interest rates at 0.50 percent when it meets next month.

(Writing by Leah Schnurr and David Ljunggren; Editing by Bernard Orr and Alan Crosby)