The head of the financial advisory firm who dramatically collapsed on the stand at the banking royal commission in April is being sued by the corporate watchdog.

The Australian Securities and Investments Commission commenced civil penalty action against former Dover Financial Services director Terry McMaster in the Federal Court on Monday.

ASIC wants the court to declare McMaster and his company broke financial services law by misleading customers with its "Client Protection Policy" between September 2015 and March 2018.

"The Protection Policy purported to be 'designed to ensure that every Dover client get (sic) the best possible advice and the maximum protection available under the law'," ASIC said in a statement.


"However, in ASIC's view it was designed to burden clients with the potential liability for losses resulting from advice that was negligent, inappropriate or not in a client's best interests."

The Protection Policy was withdrawn in March after ASIC raised concerns.

McMaster appeared at the banking royal commission the following month, where after two hours of intense questioning he turned "white as a sheet" and began to breathe heavily. He was stretchered out and taken away by ambulance.

Dover Financial Services went out of business in June when its financial services licence was yanked and Mr McMaster removed from the industry as part of a court-enforceable undertaking with the regulator.

Speaking to the ABC, McMaster accused ASIC of pursuing a "vendetta" against him and said he was a "victim of deliberate humiliation and harassment".

"In the last 12 years, there have only been 31 complaints against Dover, compared with tens of thousands against the big banks," he said. "Not one client has complained (specifically) about the client protection policy … and no client suffered any loss at all."