The man at the centre of the Melbourne siege was released from jail late last year despite lighting a fire in prison because his behaviour was considered good enough for parole.
Yacqub Khayre's release also came despite a reform - made after Adrian Bayley murdered Jill Meagher - that could have kept him behind bars until October 2017.
He shot and killed Chinese-born Kai Hao and held an escort hostage before dying in a hail of bullets in suburban Brighton on Monday night.
Khayre, who was in prison for a violent 2012 home invasion, set two fires while in custody.
The second fire, at Barwon Prison in February, 2015, was in the second half of his sentence and he was handed extra jail time as punishment before being paroled in December, 2016.
But a 2013 review of the system from former High Court Justice Ian Callinan recommended a prisoner be denied parole if they do not behave satisfactorily for at least the second half of their jail time.
The measure was implemented as practice in April 2015, but not made law.
That technicality means the Adult Parole Board took the fire into account, but wasn't bound by law to keep Khayre in jail.
"The board has a broad discretion about how it takes this information into account," it said in a statement to AAP on Thursday.
Five specialist police squads are investigating the attack, with the police professional standards command and state coroner also expected to investigate.
The 29-year-old Khayre was in a deradicalisation program run by the Islamic Council of Victoria which was funded to take up to 22 people each year
He once spent 16 months on remand before being acquitted of a 2009 terror plot on Sydney's Holsworthy army base.