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The Financial System Inquiry has called for ASIC to be given greater power and has endorsed a model that would make brokers pay for the regulator's services.
The final report of the David Murray-led federal inquiry said a stronger ASIC would improve consumer protection.
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"In particular, the inquiry considers that ASIC should devote more attention to industry supervision, including more proactively identifying and weeding out misconduct," the report said.
"It has also recommended several measures to strengthen ASIC, including better funding, enhanced regulatory tools, stronger licensing powers to address misconduct, and substantially higher criminal and civil penalties."
The report noted that ASIC had suffered a $120 million cut in this year's federal Budget, and argued that the regulator should be given greater year-to-year certainty about its funding.
A "more rigorous funding model" would make it easier for ASIC to conduct its regulatory activities and would enhance transparency and efficiency, according to the report.
The report also echoed a recent call from ASIC for a user-pays model, which would force brokers and other financial services professionals to contribute to ASIC's budget.
"Government should recover the cost of ASIC's regulatory activities directly from industry participants through fees and levies calibrated to reflect the cost of regulating different industry sectors," the report said.
A user-pays model would be expected to strengthen engagement between ASIC and industry participants, although it could also increase barriers to entry and limit competition.
The Financial System Inquiry report also appeared to touch on a claim made by many brokers – that ASIC is quick to punish one-man firms but shies away from taking on banks.
"The maximum civil and criminal penalties for contravening ASIC legislation should be substantially increased to act as a credible deterrent for large firms," the report said.
"ASIC should also be able to seek disgorgement of profits earned as a result of contravening conduct."
The report also urged the federal government to strengthen the Australian Credit Licence and Australian Financial Services Licence regimes to help ASIC deal with misconduct.
"ASIC should be able to consider all relevant factors in determining whether or not a licence should be granted," it said. "ASIC approval should be required for material changes in the ownership or control of a licensee.
"Finally, ASIC should have more capacity to impose conditions requiring licensees to address concerns about serious or systemic non-compliance with licence obligations," the report said.
[Related: Inquiry calls for full disclosure of bank-owned brokers]
