The CEOs of all the major banks, Macquarie and the regional banks will also front Commissioner Hayne from next Monday to respond to a litany of failures exposed by the inquiry.
"The purpose and broader social responsibly of financial services appears to have been lost in these cases. The organisation cultures that condoned, or even encouraged, such behaviour are fraught and if they have not already been weeded out, they need to be," he said.
"Financial institution participants, in succumbing to these failures, appeared not to have a sense of professional responsibility to behave in ways to protect customer and counterbalance any tendency towards greed."
While culture itself is an "inherently complex force, particularly for a large financial institutions", Dr Laker said the "tone is set from the top".
The culture review
Despite regulators around the world focusing more on risk culture, he said banks should not "look to policy makers to develop a prudential standard you can tick" and "don't expect supervisors to determine an institution's culture… It is the institution itself that must shape and name its culture."
Yet the same event heard from the head of governance, behaviour and culture at the Dutch central bank, Wijnand Nuijts, which described how De Nederlandsche Bank (also the prudential regulator) has created a special supervisory team including behavioural psychologists, who conduct culture reviews in all major financial institutions in the Netherlands to identify risks inherent from poor board and management decision-making processes.
The Finance Sector Union, in its submission to the Hayne interim report, has called for a new cultural review section to be created within APRA "empowered to conduct regular culture reviews of the kind undertaken in the Netherlands DNB should be imposed on APRA".
Dr Laker declined to comment on whether the Dutch model should be created in APRA.
Banks are expecting Commissioner Hayne next week to hone in on remuneration polices, including the practical operation of "balanced scorecards", after his interim report suggested reforms to reduce sales-based incentives for front line staff need to be made higher up the chain.
"Eliminating incentive based payments for front line staff will not necessarily affect the ways in which they are managed if their managers are rewarded by reference to sales or revenue and profit," the interim report said.
Dr Laker said boards and senior executives must "drive the tone through the middle" but this is easier said than done because efforts often meet the "permafrost of middle management".
He described the "stark conclusion" in the interim report that trust had been eroded due to the pursuit of greed.
"Short-termism, particularly when incentivised by remuneration arrangements that gave excessive weight to short term financial results at the expense of customer outcomes, is always cited as a major factor" of bad behaviour, Dr Laker said.
It was fair to challenge this by asking, "isn't the pursuit of profit meant to drive the market economy and doesn't acting in ones self interest help to maximise society's welfare?"
More than invisible
However, he said banks appear to have lost perspective on the teachings of economist Adam Smith. While advocating for a free market, Smith also argued it should be based on ethics, including trust, and sympathy for others, as identified in his Theory of Moral Sentiments.
"In the financial services industry, Smith's invisible hand does not seem to have guided us to an inherently moral market place," Dr Laker said.
"Financial institutions, in many places, still have some way to go in embedding a clear customer focus in the governance framework and in risk management and decision-making processes."
Commissioner Hayne's interim report had been "painful reading for all of us who are committed to strong and trustworthy financial services industry in Australia," Dr Laker admitted.
But the "harsh spotlight of the royal commission has raised the question of how to improve culture and conduct, which is perhaps more relevant today given the community's patience is being sorely tested."
Culture repair would be a long term project, and will need to focus on improving accountability, management communication and incentives, including recruitment processes and how bankers are promoted.
On the ABC last Thursday, Dr Henry said banks needed to ask a "profound question": "Why do we exist and to whom do we owe a responsibility?"
"Do we exist in order to make profits and do we see our customers as the means by which we make profits for our shareholders, or instead, do we exist because of our customers, and do we see our shareholders as providing the means by which we deliver for our customers an exceptional service for our customers?" Dr Henry asked.
NAB had a strong conviction "the reason we exist is because of our customers," he added.
But Dr Laker said: "That question, obviously, was not asked in many cases."