Former federal Treasurer Peter Costello has rebuked the corporate regulator for its role in overseeing the country's banks, saying a damaging inquiry into the sector showed it was "not awake at the wheel" and had let the sector "behave poorly".
The lashing from the Future Fund chairman ramps up pressure on the Banking Royal Commission, as it is called, to widen its focus to include the effectiveness of the country's corporate and financial regulators.
Costello was Australia's federal Treasurer from 1996 to 2007 and an architect of the country's current corporate regulation system.
In 1998, he oversaw the creation of the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority.
Since hearings began in February, the royal commission has heard accusations of bribe-taking, the charging of fees without providing service and board-level deception at the country's biggest money managers, wiping more than $30 billion from their collective market valuation.
The lawyers running the inquiry have said they may make formal findings that the country's biggest wealth manager and one of its biggest lenders broke the law, and hearings are still underway.
"It's clear that some of the banks have behaved poorly," Costello said on an earnings call for the Future Fund.
"It's clear that the people that were responsible for administering the banks probably haven't done their jobs," Costello said.
"We want to know where the regulator was. Where was ASIC when all this was happening? That's the next step of the royal commission, to find out why the regulatory agencies weren't awake at the wheel."
An ASIC spokesman declined to comment.
Costello said the royal commission would ultimately affect banking profitability and the Australian economy by encouraging tighter regulation and closer scrutiny of borrowers' ability to repay debt.
Even outside of the effects of the inquiry, Australia's banks would likely lift mortgage rates despite a long run of record-low benchmark rates due to their exposure to the United States where rising share prices have pushed up interest rates, Costello added.
The Future Fund was a beneficiary of rising US stocks, returning 9.3 per cent for the year, and easily beating its 6.1 per cent target, partly due to offshore equity markets exposure.
The 12-year-old fund, which will start paying public servant pensions from 2026, said it had also increased its exposure to risk due to an improving global economic outlook.
The fund now has $146 billion under management.
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