The Financial Services Council (FSC) has welcomed Financial Services Minister Daniel Mulino’s announcement of Treasury consultation to consider how best to impose a special levy to meet the funding shortfall in the costs of the Compensation Scheme of Last Resort (CSLR).
In January, the CSLR announced estimated claims costs relating to personal advice in 2025/26 were $70.1 million, but this was revised in July to $67.3 million, or $47.3 million in excess of the $20 million limit on levies. As he considers how to use his discretion with regard to the special levy, Mulino has also released a consultation paper that is calling for submissions from stakeholders until 29 August.
“In considering whether and how to determine a special levy, the Minister should have regard to the risk of entrenching further moral hazard into the scheme through underwriting investment losses, the financial sustainability and viability of sub-sectors and spreading the cost as widely as possible to minimise the burden on any one sector,” FSC chief executive Blake Briggs said.
The industry highlighted the need for the scheme to be made sustainable if it was going to be able to continue to compensate consumers.
“If the industry is going to bear the costs of the $47 million special levy, the industry needs assurance that the scheme will not continue to blow out year on year,” Briggs added.
He noted the scheme has already swelled by 840 per cent from Treasury’s initial estimate of $8.1 million per year to $75.7 million and pointed out the costs were an ongoing burden to an industry that has already seen financial adviser numbers fall by 44 per cent since 2019.
“It is simply not sustainable to have an indeterminate and growing liability being imposed on the parts of the sector doing the right thing to pay for the sins of others,” he explained.
The consultation paper asks stakeholders 16 questions about principles the Minister should have in mind when considering high-level options, repeatability, connection to the losses and capacity to pay.
