Penalties for bad behaviour among bankers are not strong enough to deter individuals from ripping off customers, the chairman of the Australian Securities and Investments Commission (ASIC) says.

Key points: Greg Medcraft calls for increasing financial consequences for unscrupulous financial planners

Greg Medcraft calls for increasing financial consequences for unscrupulous financial planners "You've got to have penalties that actually hurt," he says

"You've got to have penalties that actually hurt," he says No one has suffered financial penalty for channelling customer funds into inappropriate investments

Increasing the financial consequences for unscrupulous financial planners and life insurance salespeople should be the priority if the Government is serious about creating "a law enforcement regime that works", Greg Medcraft told Lateline.

"If you're a law enforcement agency you've got to have penalties that actually hurt," he said.

"Unfortunately ... people are deterred by the prospect of how serious a penalty's going to be. That is critical. As well as the funding for more surveillance, and then having penalties that actually work — that put the fear of God into people."

Despite a personal plea in a white paper delivered to the former Labor government four years ago calling for penalties to be beefed up, Mr Medcraft said the formal recommendation was still being "reviewed" by the Turnbull Government.

Since Federal Labor ramped up calls for a banking royal commission earlier this year, the corporate police unit ASIC has come under intense pressure to justify its lack of action against rogue staff in the financial services sector.

Not a single employee has been arrested or charged with criminal offences at the Commonwealth Bank in the two-and-a-half years since the veil was lifted on a culture of poor financial advice.

No-one has suffered a financial penalty for channelling customer funds into inappropriate investments.

Mr Medcraft, himself a former banking executive with 30 years of experience in the industry, also admitted that no staff from Comminsure (the Commonwealth Bank's insurance arm) had been charged with criminal offences despite revelations that doctors at the bank were being pressured to change their assessments of customer claims to avoid payouts and delay the payment of eligible claims to terminally ill customers.

In the past 12 months, ASIC has banned 29 financial advisers from the industry, but that represents the extent of its moves against corrupt individuals who faced no financial consequences for their misconduct which often resulted in hundreds of thousands of dollars worth of losses for clients of the bank.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 10 minutes 46 seconds 10 m Interview: Greg Medcraft, Chairman of the Australian Security and Investments Commission

'We've got to see more individualised accountability'

In his testimony to a House of Representatives Committee earlier this month, CBA CEO Ian Narev defended his decision not to sack any staff members for their conduct over the Comminsure scandal.

A week after tabling his own review of the insurance sector to the Parliament, Mr Medcraft said Australia's banks were going to have to learn from Wall Street where banks had begun sacking staff to send a message of zero tolerance.

"I think going forward, the banks have really got to look at actually seeing what can be done in terms of terminating staff where in fact there is really a breach of their internal controls," he said.

"I do think we've got to see a lot more frankly, we've got to see more individualised accountability, that's for sure."

The ASIC chief also emphasised the need for more accountability generally among life insurers who, he said, currently face no penalties for not acting in good faith.

A quirk in the corporations law means life insurers are exempt from clauses that require others in the financial sector to act honestly and fairly.

ASIC's six-month review into Australia's life insurance industry found up to a third of total and permanent disability claims made by customers were being knocked back.

This might be explained by a remuneration practice where advisers are financially rewarded for signing people up to insurance policies, while other staff in the organisation are given bonuses which get higher commensurate with the number of claims denied.

Mr Medcraft conceded that efforts trumpeted today by Prime Minister Malcolm Turnbull which claimed to "beef up" ASIC's resources by $127 million had amounted to little more than reimbursing the Commission for the $120 million taken from it by Tony Abbott and Joe Hockey in the 2014 budget.

Since June 2010, ASIC staff numbers have fallen by 15 per cent, which has crimped its ability to carry out "proactive" surveillance work, he said.

"Doing something about penalties is absolutely critical. So what we want is actually the resources, in particular penalties, to have law enforcement that really hurts and makes a difference that actually underpins that confidence that every Australian expects and deserves."