Joint industry submission on the Compensation Scheme of Last Resort
Director
Programs and Redress Unit
Treasury
Langton Cres
Parkes ACT 2600
By email: CSLRreview@treasury.gov.au
Dear Director,
Joint industry submission on the Compensation Scheme of Last Resort – exceeding the sub-sector levy cap consultation
The Finance Industry Council of Australia (FICA) brings together the leading financial services industry associations in Australia – Australian Banking Association (ABA), Australian Finance Industry Association (AFIA), Australian Financial Markets Association (AFMA), Australian Investment Council (AIC), Australian Securitisation Forum (ASF), Council of Australian Life Insurers (CALI), Customer Owned Banking Association (COBA), Financial Services Council (FSC), and the Insurance Council of Australia (ICA).
We collaborate with the substantial membership of each of our constitutive associations to lead and represent the whole of the Australian financial services industry in public policy debates and regulatory reforms impacting financial services businesses and their customers. The collective aim of FICA is to ensure the financial services industry continues to provide competitive, efficient and innovative products and services in Australia with five key priorities: financing growth; right-sizing regulation; innovating markets; managing risks; and promoting financial wellbeing.
Our organisations remain committed to ensuring that consumers with eligible unpaid determinations receive compensation. However, the current design of the CSLR has proven unsustainable. The CSLR Operator has already confirmed that claims costs are expected to routinely exceed the $20 million financial advice sub-sector cap for the foreseeable future, meaning the scheme as it is currently designed will likely rely on repeated special levies to compensate consumers. (1)
FICA submits two common principles:
The Government should provide industry certainty that the CSLR will be reformed to make it sustainable and that there will be no further ad hoc levies on industry; and,
In light of regulatory and administrative failings the Government make a financial contribution to the sustainability of the scheme.
FICA opposes the routine use of special levies as a funding mechanism. They are inherently unpredictable, undermine industry confidence and effectively introduce a de-facto tax on business. This approach is also inconsistent with the intention of the special levy provisions, which were designed to be an exceptional measure, not a recurring source of revenue.
To elaborate on these common principles FICA makes the following recommendations.
1. The Government commit to reforms to make the CSLR sustainable, prior to finalising a special levy.
We request that the Minister prioritises implementing reforms to the CSLR so that industry can have certainty of these reforms alongside any final decision on the special levy. In this context, FICA notes that the Minister is not bound to a timeframe in which to decide how the $47m excess will be funded under section 1069H of the Corporations Act 2001.
Our members submitted a range of recommendations to Treasury’s Post Implementation Review of the CSLR, that could place the CSLR on a more sustainable footing. Some of them include:
excluding hypothetical capital gains from being compensable under the CSLR, making the scheme genuinely last resort;
significantly reducing the administrative costs of ASIC, AFCA and the CSLR operator that are transferred to industry through the CSLR;
introducing and ongoing monitoring of capital and professional indemnity insurance obligations on financial advice businesses;
reducing the maximum compensation cap from the current level of $150,000 and refining the eligibility criteria, to ensure the scheme is targeted to the needs of lower income consumers who disproportionately experience hardship as a result of losses; and
enhancing and enforcing ASIC and the CSLR operator’s subrogation rights and obligations to actively pursue these rights to ensure timely and effective pursuit of recoveries from those directly responsible for consumer losses, thereby reducing the scheme’s reliance on industry funding.
Implementing these measures would give industry confidence that the scheme is sustainable and is operating in line with its policy intent.
2. The Government should make a contribution to the costs of the CSLR.
The CSLR is designed to be a benefit to any Australian that has had a finding in their favour by AFCA that cannot be covered by the (typically bankrupt) relevant financial service providing firm. There are good policy reasons why public funding should make a contribution to such a scheme. A contribution would also create incentives for regulators and other relevant bodies to manage scheme costs and subject these costs to normal budget processes and disciplines.
When the CSLR was legislated, the Government committed to funding the first levy period of the scheme. While technically that period covered only April to June 2024, industry reasonably understood this commitment to apply to the scheme’s first full year of operation. That understanding was central to supporting the passage of the scheme.
It was also widely expected that the Government would contribute towards legacy Dixon Advisory (Dixon) claims. However, this did not occur. Due to a series of delays, including AFCA’s pause on complaint processing, the Government’s $4.8m contribution ultimately covered zero Dixon claims.
To recognise the public good elements of the scheme, to ensure appropriate scheme cost incentives and disciplines for AFCA, ASIC, and the CSLR, we therefore submit that the Government should now contribute an amount commensurate with its original commitment to help fund the current excess. Such a contribution would restore trust in the scheme’s rollout and demonstrate fairness in sharing the burden.
Thank you for your consideration of these recommendations.
Yours sincerely,
Andrew Hall, FICA Chair &, Chief Executive Officer, Insurance Council of Australia
Simon Birmingham, Chief Executive Officer, Australian Banking Association
Brett Harper, Chief Executive Officer, Australian Financial Markets Association
Navleen Prasad, Chief Executive Officer, Australian Investment Council
Chris Dalton, Chief Executive Officer, Australian Securitisation Forum
Mike Lawrence, Chief Executive Officer, Customer Owned Banking Association
Christine Cupitt, Chief Executive Officer, Council of Australian Life Insurers
Blake Briggs, Chief Executive Officer, Financial Services Council
Diane Tate, Chief Executive Officer, Australian Finance Industry Association
(1) David Berry, Conexus Summit: Professional Planner 2025 Advice Policy Summit (11 February 2025).