ASIC has a culture of subservience and acquiescence when it comes to the big banks, says a former lawyer for the corporate watchdog.

James Wheeldon worked for ASIC as a junior lawyer for just under a year between 2004 and 2005, and said many of the same senior people were still in charge and nothing had changed.

"If I wanted to get a job with a bank, I'd go work for a bank instead of doing the banks' work through ASIC," he said.

"I walked out of the job because I didn't want to work for a bank; I wanted to work for the corporate regulator, and it just wasn't doing its job."

According to him, the main problem with ASIC is that it defers to the banks, lawyers and their lobbyists.

"I thought my job as a lawyer within the regulatory policy branch at ASIC would be to enforce the law, because that's what it says in the ASIC Act, [what] ASIC is supposed to do," Mr Wheeldon said in an interview with the ABC's PM program.

But while there he said he saw exactly the opposite.

"I saw ASIC literally changing the law, amending the Corporations Act to benefit the banks and the lobby groups for the banks," he said.

ASIC has the power to take the law as drafted by Parliament and make certain changes, within strict rules.

But Mr Wheeldon said ASIC made changes to the law to benefit the banks, at the request of what is now known as the Financial Services Council.

"I was explicitly told as a lawyer in the regulatory policy branch of ASIC that my job was to deliver for the banks and their lobbyist, and to produce outcomes that were satisfactory to them," Mr Wheeldon said.

"The question of protection of retail investors was a distant second."

'They lie about big things, they lie about small things'

In the decade since Mr Wheeldon worked for ASIC, there has been a Senate inquiry into financial services, the current banking royal commission, and the announcement of tougher penalties for misconduct.

But Mr Wheeldon said, although there was a new head of ASIC, things have not changed.

"He's only been there for a few weeks and hasn't had any chance to make his mark," he said.

"But many of the senior people within ASIC are people who have perpetrated this culture of acquiescence and subservience towards the banks."

Mr Wheeldon told the Senate inquiry that as a junior lawyer at ASIC he reported to a more senior lawyer who was actually an employee of MLC, not ASIC.

"He was on secondment to ASIC, and he was helping ASIC prepare its response to an application for relief that he had helped draft in his capacity as a lawyer assisting the lobbyists for the banks," Mr Wheeldon said.

ASIC did not deny this to the Senate inquiry but, according to Mr Wheeldon, his bosses did not see a problem with it.

"Having lobbyists from the banks working in the regulatory policy branch, advising ASIC on amending the law to benefit the banks — as far as current senior people at ASIC are concerned, that's fine, there's nothing wrong with it," he said.

He said the banks, their lawyers and their lobby groups still treated ASIC with contempt.

"They lie about big things, they lie about small things, they do it as a matter of course. I saw that when I was there 12 or 13 years ago — it's still going on today."

Much evidence at the royal commission coming from ASIC

But others have defended ASIC's contribution to change, saying the regulator is working hand-in-hand with the banking royal commission.

Dimity Kingsford Smith, a Professor of Corporate Law at the University of New South Wales and a member of the external advisory panel for ASIC, said ASIC had been working on these matters for a long time.

"Much of the evidence which is being exposed by the commission is actually coming directly from the regulators, particularly ASIC," she said.

She noted there had been many more criminal prosecutions than people are generally aware of, but there had also been unsuccessful high-profile cases that had hurt the public's perception of ASIC's performance.

Professor Kingford Smith said ASIC took the approach of looking at administrative penalties first, moving on to civil or criminal prosecution if lesser options did not succeed.

But she suggested ASIC could look at that approach when the royal commission hearings were complete.

'It's enormously difficult for ASIC to be everywhere at once'

Mr Wheeldon believes ASIC is too big an organisation to effectively cover all of its responsibilities.

"It's responsible for collecting fees on registering companies ... market supervision, prosecuting market manipulation, insider trading, financial advisers," he said.

That, he said, put the protection of individual investors "very, very low down the list of ASIC's priorities".

"In my experience, if there is a conflict between helping the banks and protecting retail investors, ASIC will side with helping the banks."

Professor Kingsford Smith agrees ASIC has a big job to do.

"The problem ASIC has is that it has to be active across a very, very wide range of financial services providers, and some of them are some of the biggest companies in the country, right down to tiny minnows and one-person sole practices," she said.

"It's enormously difficult for ASIC to be everywhere at once, even if it were a regulator 10 times the size."

She hopes the current spotlight being shone on the regulator by the royal commission will help with the question of resources.

"We are beginning to see a great deal more political will to pay attention to financial services and banking regulation," she said.

"Hopefully that will translate not just into penalties but into a greater legitimacy and understanding of the work of regulators who have often been held up as not performing well rather than doing their best with what they have."

ASIC declined to give any new response to Mr Wheeldon's allegations, pointing to a statement in April 2014 after he spoke at the Senate Economics References Committee about ASIC granting relief to super funds that were using generic online calculators.

Back then, it completely rejected his comments about the regulator.

The then-chairman of ASIC, Greg Medcraft, later told the committee there was no special treatment of any parties and said Mr Wheeldon's attack had no foundation.

Since working at ASIC, Mr Wheeldon has become a barrister in corporate law whose clients include people defending themselves against the regulator.

He also ran as a Labor Party candidate for a seat in the New South Wales Parliament in 2015.