The Australian Prudential Regulation Authority (APRA) has flagged more scrutiny of culture and remuneration in financial services organisations, and has set up a team to examine these issues.

Chairman Wayne Byres says in financial services businesses, “financial strength will not ensure ongoing resilience”.

“Indeed, if not well governed and managed, whatever financial strength exists will inevitably be eroded,” he told a banking seminar last week.

“APRA’s supervisory approach has traditionally placed a strong emphasis on the governance and risk management of financial institutions.

“Since the financial crisis, remuneration arrangements and risk culture have also received more prominence.”

Mr Byres says culture and remuneration are indicators of health in financial institutions.

“Recent papers by the Financial Stability Board and the Basel Committee on the topics of governance, risk management, risk culture and remuneration have reinforced the importance of these assessments,” he said.

“Within APRA, we’ve recently established a small team – designed to act as a centre of expertise – to help drive our supervisory efforts in relation to governance, culture and remuneration.”

Mr Byers says these three areas are inter-related, but he accepts most governance issues have been addressed.

“On culture and remuneration we have more to do before we can be confident these are genuinely supportive of long-term financial strength rather than, as we have seen in the past, possible threats to it.”