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APRA has called for banks to demonstrate a "clear and unambiguous" risk appetite after confirming two new guides on risk management.
The prudential regulator has now finalised its prudential standard and prudential practice guide on risk management, which will come into effect on January 1.
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It comes after APRA released preliminary versions of the two documents in October.
APRA received five responses that were "broadly supportive" of the changes proposed in the two documents but also requested changes or clarification on certain matters.
It responded by making minor changes to one document and leaving the other unchanged.
Deputy chairman Ian Laughlin told the Governance Institute of Australia National Conference that risk culture is becoming increasingly important around the world.
Mr Laughlin said "the risk appetite must be clear and unambiguous" if an institution is to have a sound risk culture.
He also said "the espoused values must be clear and consistent with the risk appetite and the business strategy".
The new prudential standard calls for bank boards to understand the risk cultures in their organisations, and ensure that any necessary changes are identified and implemented.
Mr Laughlin said directors need to ask themselves a series of "challenging questions".
First, they need to find out if the organisation's values on risk culture are supported by management and staff, he said.
Second, they need to investigate whether remuneration and KPIs consistently support and drive the desired risk culture.
Third, they need to gain a clear understanding of the quality and consistency of decision-making throughout the business and be satisfied that this is driving an appropriate risk culture, he said.
[Related: APRA criticises banks in mortgage crash stress test]
