The Australian Prudential Regulation Authority (APRA) is paying increased attention to institutions’ culture and values, according to Deputy Chairman Ian Laughlin.

While regulators worldwide have focused on rules and regulations, they increasingly recognise the fundamental importance of risk culture, he told the Governance Institute conference in Brisbane last week.

While “hard stuff” such as capital, ratios and margins are clear, “soft stuff” such as qualitative assessments, culture, values and behaviours are more difficult to measure and at times not easy to understand.

“Much of what APRA does falls into the hard stuff bucket,” he said. “But we are giving increasing attention to the soft stuff.”

Mr Laughlin says an understanding of risk culture and its importance to risk management are core to good supervision and will become more important in an era of deregulation.

Strong capital management, risk management and governance are the foundations of a prudentially sound institution.

To achieve a sound risk culture an organisation must set an unambiguous risk appetite. Its values must be clear and consistent with the risk appetite and business strategy, and decision-making should be consistent with values, risk appetite and strategy.

The regulator finds most entities’ risk governance is “adequate” or worse, and it rates only a minority as having “sound” governance.

“We do not find consistently satisfactory standards and so this is an ongoing area of focus for us,” he said.

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