Australian Prudential Regulation Authority Chairman Wayne Byres has defended the regulator’s focus on corporate culture.

“Regulators have variously been accused of being on a culture crusade and wanting to be the culture police – that’s not the case,” he told the Australian Financial Review Banking & Wealth Summit in Sydney last week.

He agrees regulators “have certainly put culture in the spotlight”, but says it is ultimately the responsibility of the banking and financial services sector.

“Regulators are really keen to see the industry lead the running on this issue.

“We need the financial sector to take up the challenge to put in place better incentives for prudent behaviour, so as to prevent problems emerging in the first place.

“That is likely to be far more productive than spending our time removing so-called bad apples after the fact.”

Mr Byres says there are “good signs” industry is heeding regulators’ call to prioritise culture.

“Our engagement with boards has highlighted they are thinking about this issue more systematically.

“Balancing ethics, prudence, customer interests and shareholder needs in a commercial environment is a challenge that belongs to everyone in financial services.

“We’ve all got work to do to get the balance right.”