Former federal treasurer Peter Costello has issued a scathing critique of Australia's corporate regulators, saying they were "not awake at the wheel" as the big banks behaved appallingly.

Key points: Former treasurer Peter Costello says bank regulators were not awake at the wheel

Former treasurer Peter Costello says bank regulators were not awake at the wheel Tighter credit, more expensive financial advice and less profitable banks were the likely royal commission outcomes

Tighter credit, more expensive financial advice and less profitable banks were the likely royal commission outcomes Banks expected to recoup rising offshore funding costs with out-of-cycle rate rises expected

Mr Costello said the bank royal commission would probably mean tougher regulation and lower profitability for the bank sector, but he saved his biggest serve for the likes of the Australian Securities and Investments Commission (ASIC) which reported to him in his days as treasurer.

Mr Costello said evidence presented at the banking royal commission made it clear that some of the big banks behaved "appallingly".

"It's clear that the people that were responsible for administering the banks probably haven't done their jobs," Mr Costello said.

"We want to know where the regulator was. Where was ASIC when all this was happening?

"I think that's the next step of the royal commission, to actually find out why the regulatory agencies weren't awake at the wheel."

Speaking at the release of the full-year results of the Future Fund, which he chairs, Mr Costello said the upshot of the royal commission will be tighter credit, more expensive financial advice and less profitable banks.

"Credit will probably get harder because the obligation on banks to assess the creditworthiness of customers will probably increase, so that will have an effect on the more general economy," Mr Costello said.

Out-of-cycle hikes likely

Mr Costello also suggested that banks will now have to make out-of-cycle interest rate increases, but this was due to global issues and not the royal commission.

"Australian banks borrow a lot of money offshore, US rates are rising, I think they will be looking to raise rates."

However, he said the slowdown in the property market driven by tighter credit and the outlook on interest rates was probably a good thing.

"Money was cheap and it was pushing asset prices up," Mr Costello said.

"Taking a little bit of heat out of that market would be good, we just have to make sure it's been done in a moderate way."

Asked whether he expected a soft landing in housing, Mr Costello said, "I hope so."

In light of the Federal Government's policy shift on energy, dropping its push for a lower corporate tax rate and banning Chinese telco Huawei from the 5G network rollout, Mr Costello said a stable regulatory environment and predicable rules were essential for investment.

"Foreign investors look for a stable regulatory regime," he said.

"It's got to be predictable, people have got to know what the rules are.

"We have to make sure we have an attractive destination with predicable rules so that people do continue to invest into Australia. I think that's an important objective of government policy."

Future Fund's liability gap blows out

The Future Fund delivered a 9.3 per cent return last year, taking its total assets to $146 billion, comfortably beating its benchmark for growth.

The fund, which Mr Costello established as treasurer in 2006 to cover the Commonwealth's unfunded superannuation liabilities in the future, raised its risk exposure last year to garner greater returns in rising asset markets.

However, Mr Costello said it was important to balance the recent returns with longer term risks.

"[The fund] slightly increased the level of risk to balance the positive near term risks with the longer term risks," he explained.

"The short-term outlook is for a continuing period of sustained synchronised growth. But over the medium to longer term, a number of risks remain and continue to evolve."

Mr Costello said the gap between the Future Fund's assets and the Commonwealth's unfunded liabilities had recently "blown out" after adjustments from the federal actuary.

However, he said if the Government kept to its commitment not to drawn down on the fund until 2026, the gap should eventually be closed and liabilities covered through to the end of the century.