The foreign influence transparency scheme requires those lobbying on behalf of foreign governments or actors in order to influence politicians or the federal government to be put on a register.
But one security expert says the scheme is seen as a name-and-shame list, with there being no distinction between authoritarian states like China and Australia's democratic allies.
"It's not seen as something that is a democratic bulwark to us," Katherine Mansted told a parliamentary inquiry on Tuesday.
"Partly because the enforcement regime ... doesn't capture the right information."
Ms Mansted said the government needed to make sure the scheme has an accessible portal and that it was updated to reflect that authoritarian influence was different from democratic practices.
This includes updating the legal definition which she says falls short and enables foreign actors to exploit grey zones and loopholes.
"Some organisations change their governance structure to avoid being put on the register, for example, by adding extra layers of complexity ... and by hiding relationships," she said.
Ms Mansted also called for a well-resourced regulator to ensure compliance.
National security and terrorism professor George Williams also agreed the scheme wasn't fit for purpose.
"When you look at the actual items that have been registered, it's not clear we're actually capturing the higher matters of foreign influence that we might expect to be covered," he told the inquiry.
"So that over inclusion and under inclusion suggests a scheme that's not well drafted to achieve its goals."
Group of Eight chief executive Vicki Thomson said there needed to be a clear distinction between foreign influence and foreign interference.
"Influence is by its nature open, transparent and part of normal diplomatic relations," she said.
"Interference in contrast is clandestine, coercive, deceptive or corrupting.
"There is sometimes a conflation of the two issues and they are distinct. That's where sometimes we are getting into some issues about the efficacy of the (scheme) in addressing foreign interference."
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