The Australian Prudential Regulatory Authority (APRA) has said that tougher enforcement of current regulation is necessary in the financial sector simply because the public cannot trust the banks to behave.

Following the release of the Royal Commission inquiry’s into financial misconduct across the industry, regulators faced criticism for their failure to act quickly or decisively. APRA has now admitted that it should do more.

The fallout from the financial scandals unearthed in the inquiry revealed complicit behavior from certain executives. Their knowledge of the malpractice that took place led to their firings.

Some regulators have faced accusations of standing by and not making the most of their powers to enact change before a culture of negligence snowballed into the problems revealed in the interim report.

Now, APRA says that it should be taking care enforce the current regulations because the banks have done nothing to suggest that they can police themselves effectively.

APRA Chair Wayne Byres said that regulators have to step in more decisively with their powers to eradicate the behavior that has blighted the financial sector and reduced trust in recent years.

According to the Royal Commission’s interim report, APRA and the Australian Securities and Investments Commission (ASIC) were just as complicit as the banks in allowing this misconduct to occur.

Commissioner Kenneth Haynes’ report said these issues “either went unpunished or the consequences did not meet the seriousness of what had been done.”

Byres said that APRA will issue a full response to the findings in due course and will start making changes in the meantime.

Admitting that APRA may have delivered a poor response to more serious situations, Byres said that its actions were consistent with those of global prudential advisors. He added: “APRA has traditionally examined cases of poor conduct as an indicator of risk, but not a direct prudential risk in and of itself, unless it was likely to jeopardize the stability of the system or an individual institution.”

Byres said that APRA would therefore need to “reflect on that approach,” adding that the way that it reacted in the past was not sufficient when misconduct problems became so widespread. The regulator merely encouraged that type of culture to permeate through the banking sector with little fear of impunity.

APRA revealed that it has several plans in the works to use its current regulatory powers more effectively. These range from mandating accountability statements to restricting pay and beefing up the corporate governance structures of banks when necessary.

However, Byres was firm in emphasizing that “to truly generate cultural change within the industry, the task cannot be left to regulators alone.”

He said that the financial industry does not operate in the same professional way as the medical, law or education industry, adding: “There is no defined body of knowledge or high entry standards for those who perform key roles.”

Also criticizing the fact that codes of conduct are only voluntary, Byres said that there needs to be a better balance between serving company and community interests.