An organisation’s culture cannot be regulated, and must instead be generated internally, Australian Prudential Regulation Authority Chairman Wayne Byres says.

“I don’t think anyone on the regulatory side of the fence would be naive enough to think they can regulate a good culture into existence,” he told a global risk forum in Hong Kong.

“Ultimately, the financial sector will collectively determine the values it wants to uphold and the behaviours it wants to display. Regulators and supervisors can only do so much.”

Mr Byers says internal failures that stemmed from poor culture were a major factor in the global financial crisis, while governments were not without blame.

Regulators have tightened standards since the crisis, and culture is the “final frontier in the post-crisis response”.

Mr Byres says he recently discussed culture change with the CEO of a significant global institution.

“There was certainly a major program of activity under way but, to be frank, none of it was particularly innovative or unusual,” he told the forum last week.

“That prompted me to ask two questions: why was it not done before, and what is to stop it being forgotten once the current program has been rolled out?”

Mr Byres says he is still waiting for satisfactory answers to these questions from a number of financial institutions.

“I think it boils down to the fact that ‘doing the right thing’ has not, at least until more recently, been seen as strategically important.

“And, coming back to the role of market discipline, managers were not being rewarded for putting long-standing principles ahead of short-term profit.

“The challenge for the industry is therefore to show genuine leadership and commitment on this issue, and not put it in the too-hard basket.”