In an attempt to allay concerns about misconduct at major banks, Treasurer Scott Morrison on Wednesday revealed Australian banks would provide $121 million to ASIC over four years in a bid to make it a "tough cop on the beat".

But the treasurer also freed ASIC from the Public Service Act, which dictates the pay and workplace entitlements for government employees that remain the subject of a protracted industrial relations battle with unions.

The decision was made after a damning capability review chaired by Productivity Commissioner Karen Chester, which found the red tape had stopped the watchdog for hiring the talent needed to tackle unethical activity.

The review, published on Wednesday, was prepared by a mix of private and public sector experts and launched in July as part of the government's response to the Financial System Inquiry led by former Commonwealth Bank of Australia chief David Murray.

It called on the government to exclude ASIC from the act as "a matter of priority" to boost its performance, recruit the best staff available and address critical workplace shortages.

"[The act] impacts ASIC's ability to attract and retain suitably qualified employees who may be attracted elsewhere by better remuneration packages," the report said.

Until today, the government's workplace bargaining policy has not allowed ASIC to lift the salary of senior staff to meet market expectations for the role.

"Some ASIC staff lack sufficient professional confidence in their roles to credibly challenge regulated entities and develop and defend independent judgements," the report said.

"Salary restrictions are a particular impediment at the EL1 and EL2 levels as ASIC is unable to compete with the remuneration packages from peer agencies."

In recent years, ASIC has recruited staff outside bargaining framework to deliver conditions but this exemption was considered problematic by the report's authors.

"As an increasing number of senior staff are not being employed under the Public Service Act, this frustrates the decision-making process, creating inefficiency and putting pressure on those who can be delegated functions and powers," the report said.

The Public Service Act was also criticised for limiting the career progression of senior staff who may be tempted by private-sector wages and for potentially impacting morale.

"Staff may be less likely to identify areas of inefficiency and suggest ways that processes could be conducted more efficiently than may be the case in an environment with higher turnover," the report said.

"Senior staff may become too removed from the regulated population and external stakeholders."

The additional $121 million will be provided by Australian banks over the next four years with the federal opposition raising concerns the cost would be passed on to customers.

Close to half of the funds will be spent upgrading ASIC's technology and data systems with $57 million allocated to surveillance and enforcement, which was damaged by cuts in 2014.

Labor leader Bill Shorten has described the announcement as "a political band aid" and continued to call for a royal commission to investigate the scale of malpractice in the sector.

A Fairfax-Ipsos poll published on Monday found 65 per cent of voters supported a royal commission investigating the banks.