Australia’s “sound, resilient and well-managed” financial system remains at risk from global uncertainty, regulatory gaps and insufficient funding for the corporate watchdog, according to the International Monetary Fund (IMF).

While the country has outperformed its peers, a combination of high household debt, reliance on overseas funding and a “highly concentrated and interconnected banking system” poses a threat, the IMF's first appraisal of the Australian finance sector since 2006 says.

A strong regulator is integral to a well-functioning system but inadequate funding for the Australian Securities and Investments Commission (ASIC) is hampering this, according to the report.

“It is important that ASIC be given more resources and flexibility over its operational budget,” it says.

“A significant amount of ASIC’s funding is non-core funding earmarked for specific projects, and the share of non-core funding has been increasing in the past few years.

“To supervise a large number of financial services licensees, ASIC uses desktop, rather than on-site, reviews for initial risk-based assessments, reflecting in part its resource constraints.

“In determining the target and intensity of its supervisory actions, ASIC relies heavily on its initial risk-based assessments, self-reporting of breaches of regulatory requirements and third-party notifications.”

Financial statements show ASIC ran at a loss of $42.72 million in the latest financial year, up 14.5%, mostly on reduced government revenue.

After the global financial crisis its annual budget more than tripled to $361 million, but it has since dropped to $353 million.

The regulator will receive a $192.9 million boost over the next four years, including $101.9 million for operational funding, $43.7 million for enhanced market supervision and $23.9 million to implement Future of Financial Advice reforms.

In September Chairman Greg Medcraft told a joint parliamentary committee on corporations and financial services the Government would “get what it pays for” from ASIC, warning only 5% of financial advisers were being surveyed.