An internal investigation is underway at the corporate watchdog over the collapse of investment company Sterling First, which has sucked up the life savings of 101 retirees and left some facing eviction.
State regulators were aware of red flags surrounding the the lifetime lease scheme in 2016, as was the Australian Securities and Investments Commission in early 2017, but it did not take action until about one year later.
Directors were prevented from selling a certain product, but they were able to restructure and sell another.
Assistant treasurer Michael Sukkar said there was clearly a "whiff of impropriety" that piqued ASIC's interest and he wanted to know whether the investigation was thorough and proactive enough.
"Were (they) doing everything they could to make sure that new potential investors were not being duped into pretty crazy products?" Mr Sukkar told 6PR on Friday.
"It seems curious to me that there was a red flag here ... and what efforts were made to really make sure people - when they saw these individuals, regardless of the product that was being flogged by them - that they were aware there was something that might not have been quite right about it from a regulator's perspective.
"That's what I'm hoping the investigation will determine."
Asked whether the system had let people down, Mr Sukkar said he would await the outcome of both investigations.
"My instinct, my gut feeling is probably yes, but I really want to see exactly what happened (and) determine what level of misconduct occurred," he said.
"If there's anything that needs to be rectified to make sure, to the greatest extent possible, it doesn't happen again, I can assure you we will do it."
Civil and criminal action may also be taken.
