Treasurer Scott Morrison has confirmed Australian banks and financial institutions will be responsible for fully funding its own regulatory body in coming years.

Key points: ASIC to receive $127 million from increased bank levy, government

ASIC to receive $127 million from increased bank levy, government Extra money to be used for surveillance

Extra money to be used for surveillance Treasurer warns banks not to pass costs on to customers

Mr Morrison announced this morning that the levy banks already pay will be increased by $121 million and the Federal Government will commit an additional $6 million in taxpayer funds, with the money going to the Australian Securities and Investments Commission (ASIC).

But he later confirmed that the banks, super funds and other financial industries will be responsible for ASIC's entire funding within an estimated two years.

"The banks will pay for this increased resource and over the next two years, we will get to full funding of ASIC under a user pays model," he told ABC's 730 program.

"We will have a future proof funding for a tough cop on the beat."

Labor, which continues to press for a royal commission into the financial sector, has described the new cash as "hush money" paid by the banks to stave off wider scrutiny.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 6 minutes 36 seconds 6 m Treasurer Scott Morrison speaks with Leigh Sales.

Today Mr Morrison has sounded a warning about any attempts by the banks to bill their customers for the increase.

"I would be furious," he said, telling reporters the banks had already been sent the message.

ASIC faced cuts under the former Labor government's efficiency dividend, and in the 2014 Abbott government budget.

Earlier this month ASIC's chairman Greg Medcraft acknowledged that those cuts had inhibited the regulator's ability to conduct proactive surveillance.

Surveillance capabilities may be expanded: ASIC chairman

Speaking after the Treasurer's announcement, Mr Medcraft said the additional funding would allow the Commission to expand its surveillance and enforcement capabilities.

He also praised the increasing reliance on a user pays system, ASIC already gets 15 per cent of its funding through industry fees and levies.

"If the banks invest in good compliance and treat their customers well and that means that we spent less time, then that means a lower bill," he said.

"We want to have an incentive on those that we regulate to do the right thing."

Additional funding will focus on: Financial advice

Financial advice Super investment products

Super investment products Identification and reporting of misconduct within financial institutions

Identification and reporting of misconduct within financial institutions Responsible lending

Responsible lending Loan fraud

Loan fraud Credit card marketing

Mr Medcraft said he could not see any risks associated with the introduction of the funding system, citing other market regulators using the same model.

ASIC Deputy Chair Peter Kell said the additional funding would allow the Commission to focus on a number of "major areas".

Mr Kell said ASIC would also be looking at the insurance sector, with a range of reviews targeting claims handling and life insurance sales.

Labor has proposed a $53 million, two-year judicial investigation into financial sector misconduct, but Mr Morrison said today's announcement was not in reaction to such calls.

He told 730 that the push for royal commission was a "cynical exploitation of people's genuine concerns", saying that ASIC could act faster.

But a number of Coalition backbenchers support the Opposition's push and six Coalition MPs told a partyroom meeting yesterday they were angry with the banks.

Senior Government ministers argue a royal commission would take too long and would not deliver results for victims.

'Big banks chosen over consumers': Shorten

This morning Prime Minister Malcolm Turnbull told Adelaide radio station FIVEaa today's announcement followed a nine-month review of ASIC and was not a "response to anything that's happened recently".

But Opposition Leader Bill Shorten said the announcement was evidence Mr Turnbull had "chosen big banks over consumers", while shadow parliamentary secretary Ed Husic said the levy was effectively "hush money".

Mr Shorten held a meeting with victims of banking misconduct ahead of today's media event and called for a change of banking culture to stop thousands of people being ripped off.

Australian Bankers' Association Chief Executive Steven Münchenberg voiced support for the change in the funding model, citing the importance of transparent contributions.

In a statement, he said "aligning the new funding model with the expanded role of ASIC will also be important to ensure regulation is effective, efficient and necessary".

Consumer groups have also welcomed the announcement, though CHOICE Chief Executive Alan Kirkland warned ASIC was still "being asked to do more with less funding".

"ASIC needs additional funding to make the most of new powers and should have a clear process to increase the bank levy as needed," he said.