Companies and boardrooms must do more to prevent the kind of misconduct flagged by the Hayne royal commission, the Australian Prudential Regulation Authority (APRA) says.

The regulator today published submissions in response to the royal commission’s interim report and policy questions document relating to last month’s insurance hearings.

In his interim report Commissioner Kenneth Hayne was highly critical of APRA and the Australian Securities and Investments Commission (ASIC), questioning why more severe enforcement action had not been taken.

But in its submission APRA defends its approach, and insists industry take its share of responsibility for past and future conduct.

“APRA believes its response to misconduct and misconduct risk has been broadly appropriate given its core prudential mandate and risk-focused approach,” it says.

“Ultimately behavioural change will only occur if boards take ownership for the actions of their organisations and the consequences of those actions.

“There is a role for [APRA and ASIC] here as the regulators in setting and enforcing standards of governance, accountability and risk culture.

“However, solutions to past problems must involve industry taking more responsibility, not less, for maintaining appropriate standards of conduct and guarding against misconduct.”

APRA says there is no “single or straightforward solution” to the problem of misconduct in financial services.

“The way forward is likely to involve a range of complementary measures, involving constructive interaction between institutions, industry bodies, regulators and Government.”

APRA says these measures are likely to include:

• institutions committing to incentive structures that reward outcomes for meeting broader community expectations as much as they do financial targets;

• a clearer regulatory and institutional focus on individual accountability, through incentive structures and appropriate responses to poor outcomes;

• regulatory powers and resources dedicated to detecting misconduct and taking action, including formal enforcement where appropriate;

• stronger industry codes, self-regulation and dispute resolution mechanisms.

In its submission to the policy questions on insurance, APRA argues against any watering down of the duty of disclosure.

“If the onus on consumers to make full disclosures to insurers was lessened, insurers would likely respond by including an additional risk margin in their pricing or may, in extreme cases, be unable to insure the risk and so withdraw from the market.”

APRA is against banning certain types of insurance products, but says all products need to be designed and sold in a way that is fair to consumers.

It backs suggested moves to give ASIC jurisdiction over the handling and settlement of claims, “and supports obligations on insurers to undertake these functions efficiently, honestly and fairly”.

Click here to read the full submissions.