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Government releases new compensation legislation for consultation

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Annie Kane 8 minute read

The Morrison government on Friday released exposure draft legislation to establish the compensation scheme of last resort, as recommended by the banking royal commission.

The government has released for consultation new draft legislation to implement recommendations of the banking, superannuation and financial services royal commission.

The legislation will establish the compensation scheme of last resort (CSLR), as well as the Financial Accountability Regime.

The draft legislation around the CSLR, open for consultation until 13 August, outlines the key features of the scheme, including the ability to authorise an operator of the scheme, eligibility requirements, compensation available for each eligible AFCA determination, the levying framework to fund the scheme, and the governance of the scheme.


The financial products and services that are in scope for the CSLR are the same as those that are authorised to be provided by AFSL and ACL holders who are required, by law, to be AFCA members. 

While credit activities undertaken by credit representatives are within the scope of the CSLR, credit representatives will not fund the CSLR as their authorising Australian credit licensees (i.e. aggregators) are liable for their activities. The primary legislation for the CSLR will confer a power to make regulations to prescribe which financial products and services are within scope for the scheme.

It is estimated that ongoing levies for the credit intermediary subsector will be $887,563, which is the sum of $479,994 in expected CSLR claim and AFCA fee costs and $407,569 in attributable administrative costs.

An example of how the levy will apply to mortgage brokers can be found below.

What the CSLR is


The main objective of the proposed CSLR is to provide a pathway for eligible consumers to receive compensation, flowing from an AFCA determination in their favour, where the financial firm has not paid the consumer in accordance with the determination.

The CSLR operates to create a pool of funds from which eligible claimants who have suffered loss or damage as a result of inappropriate action of a financial firm can access compensation even if, for example, the financial firm has become insolvent.

The government has put forward that the CSLR will encompass five financial products and services:

  •  Personal advice on relevant financial products to retail clients.
  •  Credit intermediation (leviable to credit licensees that are authorised to engage in credit activities other than as a credit provider).
  •  Credit provision (leviable to credit licensees that are authorised to engage in credit activities as a credit provider).
  •  Securities dealing.
  •  Insurance product distribution.

The CSLR will be administered by the operator, which is a company that meets the operator requirements and is authorised by the Treasurer.

Under the scheme, a complainant who has been provided with a determination by the Australian Financial Complaints Authority will be able to seek the determined compensation, up to $150,000, from the operator.

Example for brokers

The Treasury has provided the following example of how the levy might apply to mortgage brokers.

The government has assumed there to be 36,929 representatives working for 1,398 credit intermediary licensees with compulsory AFCA membership in the credit intermediary subsector.

The levy calculation methodology in the proposal paper shows that every leviable credit intermediary licensee with 37 or more representatives would be calculated to incur a levy of at least $1,000.

Taking the example of “XYZ Mortgage Broking Limited”, Treasury said that this example brokerage is a credit intermediary licensee with compulsory AFCA membership and 321 representatives. 

The methodology for this scenario shows that a credit intermediary licensee with 37 credit representatives would incur a levy of $1,030.08 ($27.84 × 37).

XYZ Mortgage Broking Limited, a credit intermediary licensee with 321 representatives, would therefore incur a levy of $8,936.64 ($27.84 × 321 representatives).

‘Supporting ongoing confidence in the financial system’s dispute resolution framework’

In a joint media release with senator Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy and Minister for Women’s Economic Security, Treasurer Josh Frydenberg said: “The establishment of the Compensation Scheme of Last Resort will support ongoing confidence in the financial system’s dispute resolution framework by facilitating the payment of compensation to eligible consumers who have received a determination for compensation from the Australian Financial Complaints Authority (AFCA) which remains unpaid.

“The Financial Accountability Regime will extend the Banking Executive Accountability Regime to all APRA-regulated entities and will be jointly administered by APRA and ASIC.

“The Financial Accountability Regime imposes a strengthened responsibility and accountability framework within financial institutions, recognising that decisions taken by directors and the most senior executives of financial institutions are significant for millions of Australians and the Australian economy.”

He concluded: “The Morrison Government remains committed to completing implementation of the Financial Services Royal Commission and in doing so ensuring Australians continue to have trust and confidence in a strong and effective financial system.”

[Related: Compensation scheme should apply to brokers: AFCA]

Government releases new compensation legislation for consultation
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Annie Kane

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.



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