The nation’s banks and superannuation funds will face tough new controls including extraordinary powers to veto top executives after a review of the peak financial regulator slammed its “culture of conformity”.

The findings clear the way for drastic new laws and a more “assertive” approach to regulating banks, insurance companies and super funds after a string of scandals which inflicted serious harm on consumers.

Interest rates have dropped to an historic low, potentially leaving those with a mortgage better off.

In a scathing report, the government’s long-awaited inquiry into the Australian Prudential Regulation Authority found it was slow to act, reluctant to change and lacking the “enforcement appetite” needed to take on big companies.

The review, led by former competition regulator Graeme Samuel, urged APRA to take a more forceful and public approach to calling out bad behaviour rather than relying on “behind the scenes” talks with financial giants.

“APRA appears to have developed a culture that is reluctant to challenge itself, slow to respond and tentative in addressing issues that do not entail traditional financial risks,” the report found.

“It has a culture of conformity. To position for the coming changes in its external environment it will need to build capability to increase the adaptability of the organisation.”

The report calls for closer and tougher supervision along the lines of APRA’s inquiry into the Commonwealth Bank last year.

Treasurer Josh Frydenberg has embraced the findings and the need for stronger powers to oversee super funds that have swollen to $2.7 trillion in retirement savings for millions of Australians.

In a significant step to weed out suspect directors and executives, the report asks the government to consider giving APRA a “non-objections power” so the regulator could veto the appointment or re-appointment of those holding office.

A key factor in the use of the veto would be the financial results for members of a super fund, although it would be broad enough to justify action whenever there were significant risks with any financial entity.

Mr Frydenberg will issue the Samuel report and his response on Wednesday with a commitment to give APRA “sufficient powers” to stop “inappropriate” directors gaining office.

“The government is determined to continue to strengthen the oversight and efficiency of the superannuation system,” he said in a statement.

Consumer groups have savaged APRA in recent years for failing to stop misconduct including the charging of “fees for no service” at a cost to customers of more than $1 billion.

The government last year named Mr Samuel and colleagues Diane Smith-Gander and Grant Spencer to conduct the capability review of APRA after strong criticism of the regulator by commissioner Kenneth Hayne in his royal commission into the sector.

Prime Minister Scott Morrison set up the Banking Executive Accountability Regime early last year with powers to impose fines, disqualify individuals and intervene in executive pay policies across the finance sector.

Treasurer Josh Frydenberg will release the report on Wednesday. AAP

Mr Samuel and his colleagues said a stronger power was needed and recommended the veto power over appointments, although they acknowledged this raised “moral hazard” risks because APRA might be seen to be responsible for the quality of each appointment.

The report calls for a shake-up at APRA to change its culture and leadership, including a new organisational structure with a stronger focus on superannuation.

It warns that more funding may be required and says the government should review the penalties it can impose on the sector, noting the regulator’s “low appetite” for enforcement.

It also calls for a more “active and forceful approach” by the regulator to take on companies in public.

“APRA needs to shift the dial towards a more strategic and forceful use of communication to ensure that it maximises its impact with regulated entities,” it said.

The new report estimates the banking and finance sector is exposed to $1.5 billion in compensation and remediation costs.

APRA has supported all the recommendations in the report, saying the findings are “fair and balanced” and recognise that the regulator has delivered on its mandate to ensure financial safety and stability.

The regulator noted, however, that “additional resources” would be required to act on the findings.