The past few weeks have seen Australia's corporate regulator, the Australian Securities and Investments Commission, strapped to a reputational roller-coaster ride as the two major parties have jockeyed for position on the need for a royal commission into the banks.

Corporate misconduct and unethical behaviour in the financial services sector have emerged as critical election issues ahead of the expected July 2 poll, on the back of a series of scandals that have embroiled the industry, think forgery and rogue financial advice at the Commonwealth Bank and National Australia Bank, misconduct in life insurance at CommInsure, and the bank bill swap rate rigging that is alleged at Westpac and ANZ.

ASIC has been praised and panned in quick succession, with the stances of the Coalition and Labor essentially hinging on whether ASIC is up to its job. Never before has its performance been subject to such wildly varying reviews.

When Labor called for a royal commission into the financial services sector two weeks ago, it said the move was necessary, in part, because the watchdog had been so badly crippled by Coalition funding cuts that it could not do the job itself.

But Treasurer Scott Morrison struck back by casting ASIC as a "tough cop on the beat" – not only capable of policing the big banks, but so good at its job that Labor's promised royal commission into the sector was a fanciful suggestion.

This was despite ASIC itself having repeatedly warned that the Coalition's $120 million budget cuts to ASIC, announced back in 2014, would significantly crimp its surveillance activities.

Morrison's endorsement was followed, days later, by the respected former senior regulator Allan Fels slating ASIC for being "too cautious" when it came to pursuing wrongdoing by companies, saying it relied too heavily on negotiated settlements.

And Fels' stance was echoed by Jeff Morris, a whistleblower who helped expose CommBank's financial planning scandal, who described as "ludicrous" the suggestion that ASIC could do just as good a job of investigating the banks as a royal commission.

Tougher cop

By Wednesday this week, Morrison had conceded that ASIC needed to be a "stronger cop on the beat". To that end, he announced, ASIC would have new product intervention powers, designed to stop dangerous or risky financial products from being flogged to consumers. Its data analysis and surveillance abilities would be bolstered to the tune of $61.1 million. Bigger fines and other penalties were likely to flow from a review of its enforcement options.

A detailed capability review into ASIC was released, along with confirmation that the regulator would shift from being mostly taxpayer-funded to being paid for by those it regulates.

ASIC's cash injection would be paid for by a levy on the banks, Morrison said – the precursor to a move to a fully industry-funded regulator by 2017-18.

But as the week dragged on, Morrison repeatedly had to fend off suggestions that the timing of the announcement of the ASIC upgrade and the release of the capability review was aimed at halting momentum for Labor's royal commission.

"Of course not," he told the ABC, pointing to the fact that the capability review had been commissioned last July – back when Labor voted against a motion for a royal commission in the Senate.

"I mean this was in the budget process before Bill Shorten even flip-flopped on an issue of a royal commission."

'Populist' royal commission

He has repeatedly referred to Labor's royal commission as a "populist" idea and a "blank sheet of paper".

Labor says its royal commission would cost $53 million, would run for two years and would examine issues including how widespread illegal and unethical behaviour are within the financial services industry, and whether Australia's regulators are properly equipped to prevent such behaviour.

Morrison says the government's package has already fixed things.

"We don't think the answer is to wait another two years, to spend another $50 plus million of taxpayer's money to resolve this," he said.

"We think the banks should pay an extra $121 million now to boost the powers and capabilities of ASIC to ensure that consumers are better protected, and ensure that the greater integrity of our banking and financial system on which so many jobs depend."

The day after the government's announcement, the Australian Bankers Association unveiled its own list of measures aimed at addressing consumer concerns about the banks.

It included measures on how its staff are incentivised, the protection of whistleblowers, the handling of customer complaints and how the banks deal with poor conduct.

Differing opinions

Nowhere were the differences of opinion surrounding ASIC more stark than in that long-awaited "capability review" of ASIC, also released by Morrison on Wednesday.

This review, the work of a panel led by the Productivity Commission's Karen Chester, revealed an irreconcilable gulf between the opinions of ASIC leaders and those of other "stakeholders" on a range of issues – including whether ASIC is "forward thinking", whether ASIC uses its resources well, and whether ASIC understands business's needs.

But that wasn't where it ended.

The report flayed ASIC's culture, finding it was defensive, inward-looking and risk averse – pointing to its reluctance to pursue litigation in untested areas of law.

"ASIC can be quick to reject and challenge criticism, with limited acknowledgment of weakness," it noted.

The report also castigated ASIC for being too focused on enforcement, too responsive to high-profile events and too reactive to issues raised in parliament.

ASIC fights back

ASIC rejected much of the criticism outright in its response to the review. "The report makes negative findings about our culture – that it is defensive, inward looking, risk averse, and reactive –without presenting meaningful evidence to justify this," it said.

ASIC was thrust into the spotlight less than three years ago when a landmark Senate inquiry into its performance sparked calls for an overhaul of the regulator.

That Senate inquiry heard concerns that the regulator was too close to the big companies that it regulates. But the Chester review called on ASIC to consult more and be more "outward looking in its interactions with regulated entities".

Much of this difference of opinion can be explained, of course, by the differing agendas of those opining.

Customers unimpressed

For the thousands of Australian consumers and retail investors whose nest eggs have been smashed by misconduct at banks and financial services companies, whose heart-wrenching evidence informed the Senate committee report, ASIC's reputation as a toothless tiger is well-deserved.

But much of the heaviest criticism of ASIC featured in the Chester review comes from those people and companies that it regulates – and their complaints are quite different to those of financially devastated victims.

It reported a perception among regulated companies, as well as lawyers and academics, that recent and intense media and parliamentary criticism of ASIC had pushed it towards high-profile enforcement actions.

This was viewed as a negative development, in part because it was "acting as a barrier to building more collaborative relationships with the regulated population," PwC reported.

Some will always see ASIC as too aggressive an enforcer – even in the face of parliamentary inquiries and submissions from burned investors arguing quite the opposite.

"There will inevitably be such a gap and a level of discontent in the regulated population for any market regulator ... ultimately it is not a regulator's role to be popular," ASIC says.

Despite the report issuing a stern dressing-down to ASIC's leadership over failings in its culture, ASIC's chairman, Greg Medcraft, had his tenure extended by the government by 18 months.

"He is the one who has been at the head of this organisation," Morrison said this week. "He is the one right now best placed to go and implement these reforms and we don't want to waste time with any transition or otherwise."

User pays

The government's two-page response to the Chester review did not offer an opinion on whether it accepted the criticism from industry about ASIC.

ASIC's relationship with industry is a critical issue right now, as the government pushes on with potentially the most difficult of the elements announced on Wednesday: an industry-funded model for ASIC.

From 2017-18, ASIC's costs will be paid for by the companies and businesses that it regulates.

It is a plan that has obvious benefits – the cost savings to tax payers among the most significant (although, it is likely that consumers will pay for it in the end anyway). The Murray Inquiry also hoped that a user-pays model would give ASIC more funding stability.

But corporate law experts, including Ian Ramsay, of Melbourne Law School, have warned that a user-pays model risks opening the door to undue influence being placed on the regulator by those paying to run it.

"It's always a potential issue," Prof Ramsay told Fairfax Media. "[But] it is not a road block."

It was only two years ago that the senate inquiry slammed ASIC as a "timid, hesitant regulator, too ready and willing to accept uncritically the assurances of a large institution that there were no grounds for ASIC's concerns or intervention".

A Treasury consultation process on the so-called "user pays" model kicked off in August last year, and judging by the responses in some of the submissions, there is a fair amount of consultation still needed.

(The Governance Institute for example, which represents company secretaries, was frustrated by what it said was a lack of detail, evidence, examples and alternative models in Treasury's paper).

Treasury's proposed model divides the types of things regulated by ASIC into six groups – including financial services licensees and companies – then each group into tiers, which would pay more or less for the running of ASIC depending on their size.

The aim is for sectors requiring closer attention from the regulator to pay relatively more, creating a price signal that, in theory, would encourage compliance.

The model includes an annual review of ASIC's funding, including industry being given the chance each year to comment on how well ASIC is spending its money – and whether its proposed funding levels can be justified.

It's this aspect of the plan – among others – that has consumer advocates worried. In their joint submission to Treasury, nine consumer groups – including the Consumer Action Law Centre, CHOICE and Financial Counselling Australia – warned that this annual review, as well as the yearly opportunity for industry to influence ASIC's funding, would "simply [create] the opportunity for different business sectors to argue for reduction of overall funding and so influence ASIC's capability to do its job".

"Regulators work for the government and the public, not for the businesses they regulate … ASIC should never have to justify its regulatory or enforcement activities, or its budget, to industry."

Political winds

ASIC has, over the years, been vulnerable to the policy and budget priorities of the government of the day.

Labor was elected in 2007 with a plan to slash funding for ASIC to "cut waste".

But it quickly changed tack at the height of the global financial crisis; in the face of an international financial meltdown, it dubbed ASIC a "world-class regulator" and boosted its funding. In the background, however, it continued snipping away with efficiency dividends.

In the eyes of the Abbott government, ASIC was a bloated bureaucracy busily ensnaring companies in needless red tape. It was unabashed in its brutal slashing of the regulator's budget as it sought to fix the budget emergency.

But the political winds have now shifted again, in the wake of the bad behaviour of the banks.

ASIC has been treated "a bit like a political football," observed Prof Ramsay.

"You take out $120 million over several years and then, under enormous pressure, you put back another $127 million."

The Murray inquiry had hoped that a user-pays model would free ASIC from funding decisions based on the short-term agendas of governments – giving it more stability and independence.

Prof Ramsay hopes so too. But he argues that a rethink is needed in how ASIC is made accountable for its actions and performance, pointing out that while it has been heaped with new responsibilities over the years, its oversight – the way it is assessed and its performance measures – have not changed.

The government has rejected a proposal in the Murray inquiry for an assessment board of ASIC, to tackle the problem that much of the formal scrutiny of ASIC applied through parliament is "episodic". "I do think we need to have more of a debate about those sorts of issues," Prof Ramsay says.

This shortfall in accountability measures perhaps helps explain how ASIC can be cast both as hero and keystone cop in the course of a single news cycle.

And the reputational roller coaster is likely to only continue as the election heats up – especially if more bad news emerges from the banks.