Former director Shawn Richard was sentenced to 3 years and 9 months jail after Trio Capital collapsed in 2009, costing investors an estimated $123 million.

Former director Shawn Richard was sentenced to 3 years and 9 months jail after Trio Capital collapsed in 2009, costing investors an estimated $123 million. Photo: Jim Rice

White collar criminals, their companies and employers should forfeit all proceeds of the profits of crimes and their penalties should be increased, says the financial system inquiry.

The report has called for tougher penalties for breaches of corporate law and the introduction of a user-pays system to fund the industry watchdog. 

In a report handed down by ex-Commonwealth Bank boss David Murray, the inquiry recommended the Australian Securities and Investments Commission be given tougher enforcement tools. 

It has also called for a user-pays system that would see industry participants pay a levy for the cost of policing their sector. 

In a move that would bring Australia into line with the United States, Canada and the United Kingdom, maximum civil and criminal penalties should "substantially" increase to act as a "credible deterrent for large firms". 

"ASIC should also be able to seek disgorgement of profits earned as a result of contravening conduct," it said. 

It said while the watchdog's ability to police financial and credit licences had strengthened as part of the Future of Financial Advice (FOFA) reforms, gaps still existed in the regime.

This was highlighted by the collapse of companies such as Trio Capital.

"ASIC should have more capacity to impose conditions requiring licensees to address concerns about serious or systemic non-compliance," it said. 

The corporate watchdog's funding has been slashed by $120 million over the next four years under Treasurer Joe Hockey's budget. 

Chairman Greg Medcraft has called for tougher penalties for white collar criminals in the lead-up to the inquiry and advocated for a user-pays system.

"Such a model is not about increasing ASIC's budget but about providing the economic incentives to drive the government's desired regulatory outcomes for the financial system," he said in October.

The introduction of an industry funding model would address ASIC's funding problem, the inquiry said.

"The main benefit of industry funding is its potential to give ASIC more predictable funding as well as strengthen engagement between ASIC and industry on the costs of conduct and market regulation," it said. 

A scathing Senate inquiry report into ASIC's handling of the Commonwealth Bank financial planning scandal in July made 68 recommendations, including the introduction of a user-pays model, a review of civil and criminal penalties and an increase in ASIC's powers over financial planners to include the power to ban individuals on suspicion of "egregious misconduct".