The new chair of ASIC is wrong. Or confused.

Either way it's not a good sign given the mammoth task ahead of him to bring an unruly financial sector to heel, and the royal commission has shown there is much to do.

In a speech earlier this month, James Shipton hoped to send a shiver through the spines of business leaders, in particular bank executives, with his tough talk.

But he took the sting out of his own tail.

"A breach of section 912A, the 'efficiently, honestly and fairly' obligation … currently does not incur a penalty," he told a conference.

Section 912A of the Corporations Act deals with the general obligations of holding a financial services licence, which a business needs if it wants to provide financial services.

And it does have a penalty, a very big one.

Just a few pages on in the act, section 915C states: "ASIC may suspend or cancel an Australian financial services licence" if "the licensee has not complied with their obligations under section 912A."

How could the regulator get that so wrong?

"I would have thought that cancelling or suspending a licence is a type of penalty — albeit not a criminal penalty or what the Corporations Act refers to as a civil penalty," said corporate law expert Professor Ian Ramsay.

"The other thing is that ASIC has the power to ban someone from providing financial services if the person has not complied with their obligations under s912A."

So either a business or an individual working in a business could lose their licence to operate, although that requires consultation with the bank regulator and the approval of the minister if that business is an authorised deposit taker (for example, a bank).

Too big to fail, too big to penalise properly?

While this critique may seem pedantic, it goes to the heart of why we are having a royal commission — if the regulator doesn't see the cancelling of a financial services licence as either an option or a penalty what do our banks have to fear?

Admittedly, cancelling the licence of one of Australia's major banks is a big stick to wield.

But, if the corporate cop wants to get serious about cracking down on wrongdoing within our financial institutions, perhaps it should raise it as an option.

It is fair to say that a bus can be driven through many sections of the Corporations Act and that ASIC has been lobbying hard to stiffen penalties, but it should also use the ones it has at its disposal.

Late last week, in his judgement on ASIC's Westpac rate-rigging case, Justice Jonathan Beach found Westpac contravened four parts of section 912A of the Corporations Act.

ASIC has an opportunity to test out the s915C penalty. Justice Beach is currently seeking submissions.

Penalty is paying back the proceeds of the crime

Another failure of the corporate watchdog to flex its muscle has been its use of enforceable undertakings.

I questioned Mr Shipton about why when petty criminals commit crime they go to jail, no negotiation, but when financial institutions steal millions from their customers they get to negotiate their penalty.

Sorry, this video has expired ASIC chairman James Shipton quizzed about enforceable undertakings

Mr Shipton's answer was that enforceable undertakings are necessary because they are the only avenue that the regulator can use to make financial institutions pay back the money they have taken from customers.

But that doesn't explain why when, for example, Commonwealth Bank was caught providing fees for no service to the tune of almost $120 million, its punishment was to pay that money back plus a "community benefit payment of $3 million in total".

So, for the "systemic failures" that ASIC found, the Commonwealth Bank got a slap over the wrist and effectively paid 3.4 per cent interest on the money that it wrongfully took from its customers.

Why not charge the bank a dollar in fines for every dollar it wrongfully took? Or two?

That would surely sharpen the minds of banking bosses and their risk officers.

Some food for thought ahead of ASIC's testimony before the Senate Economics Committee in Canberra.