The government will conduct a review of the Compensation Scheme of Last Resort (CSLR) with a focus on how its funding model is formulated, announcing the Treasury-led exercise hours after a massive increase in operating costs was revealed.
Assistant Treasurer and Minister for Financial Services Stephen Jones stated the review was “to ensure victims of financial misconduct have a sustainable avenue for redress”.
“This is all about ensuring the scheme remains sustainable into the future for consumers and for the industry,” Jones added.
“New data from the operator of the CSLR shows that industry will have to provide $78 million to compensate victims in 2025/26, largely as a result of the liquidation of financial advisory firm United Global Capital Pty Ltd.
“Ensuring the scheme is sustainably funded will be an important focus of the review.
“Taking care of consumers is the focus of the scheme, it’s the focus of the government and it will be the focus of this review.”
The terms of reference for the review state it would consider how the CSLR is delivering on its intended objectives, how its funding model is formulated and the impacts on businesses who fund the industry levy, and the current scope of the scheme.
“While industry has provided broad support for the CSLR, it’s important that there is confidence that the scheme is meeting its objective in a way that is sustainable for both companies and consumers,” Jones said.
Professional bodies in the financial advice sector have welcomed the announcement, but they have also questioned how the levy could rise so rapidly in the second year of operation of the scheme and why advisers are footing the bill for the failure of product providers.