* Banks to pay for increased ASIC resources - Treasurer
* Reforms include better technological, surveillance powers
* ASIC, banking association welcome reforms (Adds quotes from ASIC, banks' body, academician, opposition leader)
By Swati Pandey and Wayne Cole
SYDNEY, April 20 (Reuters) - Australia announced reforms for its markets watchdog on Wednesday, forcing banks to pay for increased resources, but opposition and some ruling party lawmakers saw the measures as an attempt to avoid an inquiry into the scandal-hit banks.
The Australian Securities and Investment Commission (ASIC) will get additional funding of A$127 million ($99 million) to modernise technology, equip it with data analytics and surveillance capabilities and make it a proactive regulator.
The moves, aimed at heading off malfeasance at financial institutions before it occurs, come amid growing calls to hold an inquiry into the country's biggest banks following a series of revelations about misconduct. inquiry by the Royal Commission would probably drag on for months, stirring more controversy for the banks and the government in the run up to an election expected in July.
"The debate on whether we need a Royal Commission will inevitably continue," said Ian Ramsay, director of Melbourne Law School's Centre For Corporate Law And Securities Regulation.
ASIC is perceived to be "timid" and "hesitant", according to a 2014 Senate Inquiry. It is also seen as weaker compared to Western regulators in terms of the small fines it levies and other penalties it brings to bear.
It is now trying to rebuild confidence, in part by taking two of Australia's biggest banks - ANZ Banking Group ANZ.AX and Westpac Banking Corp WBC.AX - to court after failing to reach a settlement over allegations of benchmark interest rate rigging. secured A$149 million in compensation and remediation in the six months to December 2015, according to a report published last month. That compares with nearly A$25 million in the year-ago period.
"We want an ASIC that prosecutes," Treasurer Scott Morrison told reporters at a press conference.
The four major banks - ANZ, Westpac, Commonwealth Bank CBA.AX and NAB NAB.AX were all in the red, down between 0.3-1.3 percent on Wednesday in a firm broader market.
FUNDING BOOST
The increased funding will help ASIC enhance data analytics capabilities, surveillance and enforcement in financial advice, lending, life insurance and breach reporting as well as modernise its data management systems.
The funding increase effectively reverses cuts that ASIC suffered in the 2014 federal budget, but opposition leader Bill Shorten insisted a public inquiry was still needed.
"The truth of the matter is asking the regulator to investigate themselves isn't going to fix anything," said Opposition leader Bill Shorten. "What we need is a proper examination of the widespread health of the banking sector."
ASIC welcomed the "significant reforms" that would also give it an additional commissioner with expertise in prosecution.
"I want them (companies) to believe that there is a tough cop on the beat...and we are willing to take you on no matter how big you are," Medcraft told reporters in Sydney.
The banking industry also supported the move to have an expanded regulator, and to pay for it.
"A well-resourced regulator keeps the industry accountable and helps to underpin a healthy, stable economy," ABA Chief Executive Steven Münchenberg said.
"We support the introduction of a new industry funding model for ASIC. It's important that contributions are transparent and that the amount of fees levied matches the level of regulation and resources required for ASIC." ($1 = 1.2844 Australian dollars) (Editing by Simon Cameron-Moore)