A government decision to impose an additional levy on financial advisers to fund claims before the Compensation Scheme of Last Resort (CSLR) is a short-term solution and highlights the need for reform of the initiative, three accounting bodies have stated.
Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants labelled the exercise of ministerial powers to create a special levy to meet the additional $47.3 million in claims as “simply a band-aid funding solution to a much larger issue that needs to be resolved as a matter of urgency”.
The accounting bodies made the statement in a joint submission in response to a Treasury consultation paper on how to meet the additional funding for the CSLR expected in 2025/26.
“The growing number of high-profile cases of financial services misconduct resulting in claims against the CSLR are placing considerable strain on the ongoing funding of the scheme,” the submission stated.
“The additional funding burden is disproportionally falling on the financial advice sector, in turn impacting on the financial viability of many financial advisers.
“This is unsustainable and will likely impact the ongoing viability of the scheme itself. Legislative reform is urgently needed to address this.
“Irrespective of the immediate funding solution applied in response to this consultation, without reform to the CSLR scheme design it will be necessary for the minister to continue to exercise his or her powers in future years. We believe that such an outcome is unacceptable.”
The three bodies added the CSLR must return to being a scheme of last resort and the compensation framework be redesigned so every other option to support its funding has been exhausted in the first instance.
As such, the submission called for a review of professional indemnity insurance coverage to ensure it was more comprehensive and included run-off cover for when an insured party was no longer licensed, insolvent or been placed into liquidation or administration.
It also repeated calls made by a number of other industry bodies that managed investment schemes (MIS) should be included under the CSLR.
“In many recent cases, the claims for inappropriate investment advice have largely been a result of losses incurred by clients following the failure of a MIS,” the three bodies stated.
“It is evident that more needs to be done to increase the regulation and scrutiny of this industry, including ensuring accountability for these failures.
“MISs having mechanisms in place to support compensation payments would be an option as would tightening the regulation to offer a MIS.”
