Pedestrians walk past a logo of the Westpac Bank Corp on display in a window of a branch located in central Sydney, Australia, July 2, 2016. Reuters/David Gray

The Australian Securities and Investments Commission (ASIC) has warned financial advice firms that they would be publicly named and shamed if they do not background check their financial advisors. The misbehaviour of advisors was listed in the report released by the corporate watchdog. ASIC deputy chairman Peter Kell said that the report card showed inadequacy in the hiring and auditing process of the banks being reviewed.

According to the review released on Friday, ASIC focused on financial advice arms including NAB, CBA, AMP, ANZ and Westpac. The report showed that the independent government body has banned 26 advisers as of December 2016 because of serious compliance concerns. They are under ongoing investigations or surveillance activities in relation to many others.

Based on the report, 1,347 customers were paid at a total of approximately $30 million because they suffered loss or detriment due to the advisers' non-compliant conduct. The independent government body acknowledged the improvement made by financial institutions in improving their practices. However, Kell said that further work is needed in rebuilding consumer trust and confidence.

ASIC identified several areas of concern where improvements were needed. Based on the review, financial firms failed to notify ASIC about serious non-compliance concerns regarding adviser conduct. The financial firms were expected to improve their background and reference-checking process as some failed to implement such standard process. The audit process should be improved to ensure that the advice complies with the best interest duty.

"Failure or delay in notifying ASIC of suspected serious non-compliant conduct significantly affects our ability to take appropriate enforcement or other regulatory action. More importantly, it may also result in an increased risk of customer detriment as so-called 'bad apple' advisers continue to work in the industry," Kell said. He said that in the current review of ASIC's enforcement powers, strengthening the breach reporting requirements would be an important issue. However, he said that the penalties were not strong enough in relation to the breach reporting failure but it would be stronger if the law supports it.

The financial firms confirmed that they were implementing zero tolerance on bad adviser behaviour. They said that changes were made in the wake of the scandals. ANZ expressed that it was surprised by ASIC's findings. The BT Financial Group said that all compliance-related concerns were reported to ASIC and the affected customers were compensated. NAB said that it has been raising its bar for customers and they continue on improving the standards and performance of their company.