A few hours before Kenneth Hayne's damning findings on ASIC's performance as a law enforcement agency were published last Friday, the regulator's former chair Greg Medcraft chastised European regulators for being "lenient on banks".In a speech to the European Banking Summit in Brussels, Medcraft advanced a blueprint for banks and supervisors to fix regulatory loopholes and unethical behaviour.The former ASIC tsar, who led the financial regulator for 8 years until November last year, avoided referring to his times dealing with misconduct at Australian financial institutions.Medcraft, who now leads the OECD's directorate of financial and enterprise affairs, accused European bank supervisors of being soft on financial institutions by refusing to abandon poor regulations and implement essential reforms."From the OECD's perspective, regulators have been relatively lenient with banks in Europe than other jurisdictions, to the point where there are still gaps in regulation," he told the high-powered gathering of bankers and regulators in Brussels.Medcraft noted that European regulators had been slow to force large financial services conglomerates to separate retail deposit-taking businesses from investment banks.He also highlighted his concerns about the reluctance of regulators to remove "the problem of implicit government guarantees"."The community is starting to push back on these implicit guarantees," he warned.Medcraft's warnings to European regulators came only hours before banking royal commissioner Kenneth Hayne skewered ASIC's law enforcement record.Hayne panned ASIC's approach to misconduct cases in the financial services sector, arguing that it had been unduly reluctant to pursue court proceedings against service providers that caused harm to consumers.The commissioner was also critical of ASIC's record of negotiating remediation agreements with derelict service providers, observing that the regulator often allowed settlement talks to span several years.Apparently oblivious to the bombs that were about to hit ASIC's regulatory record, Medcraft also advised European regulators at the conference to review their approaches to overseeing banks."We need to move to a regulatory model that regulates functions, not institutions - for example the provision of credit, payments," he said. "I also see a need for a level of proportionality. "Regulators should recognise that small startups don't have the same risks as large incumbent banks. "We need to find the line between too small to care and too big to ignore."In his interim findings Hayne questions whether ASIC ensured that remediation settlements negotiated with industry miscreants were suitably proportionate to the financial benefits accruing from breaches."Financial services entities will often have profited from their contraventions of the law," Hayne noted."Often the profit earned will be larger than the damage to consumers. "Nothing in the evidence before the (royal) commission shows that ASIC takes this into account when negotiating outcomes with entities."Hayne roasted ASIC's conciliatory culture of enforcement and acknowledged he had not been persuaded that the regulator could reform its ways."There are several reasons for caution," the royal commissioner said."First, there is the size of ASIC's remit. "Second, there seems to be a deeply entrenched culture of negotiating outcomes rather than insisting upon public denunciation of and punishment for wrongdoing."Medcraft warned bankers at the