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FBAA and MFAA warn CSLR levy risks unfairly penalising brokers

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MFAA and FBAA

The industry bodies have urged the government not to make brokers foot the bill for failings in other subsectors via the CSLR special levy.

The broker associations have unveiled their wish lists for how the government funds shortfalls in the Compensation Scheme of Last Resort (CSLR) scheme, following a consultation on the matter.

The consultation, which launched last month and ended on Friday (29 August), sought feedback on how to address situations where the cost of compensating consumers through the scheme exceeds the legislated cap of $20 million for the advice sector.

In 2025–26, the financial advice sector went over its cap by about $47 million, so the government is looking at different ways to cover that shortfall and considered:

 
 
  • Spreading compensation payments over time.
  • Applying a special levy to the primary subsector.
  • Extending the levy to other subsectors.

The Finance Brokers Association of Australia (FBAA) and the Mortgage and Finance Association of Australia (MFAA) both strongly objected to the idea of brokers being forced to cover shortfalls in the CSLR.

The FBAA warned the government risks treating the industry as a “bottomless supply of money” and said brokers should not be forced to bear the brunt of financial advice failures that they had no part in.

FBAA managing director Peter White outlined that repeated warnings to government about the scheme’s funding model had gone unheeded, with brokers now potentially facing higher levies.

“When the CSLR was first proposed, the FBAA warned it wasn’t appropriate to take funds from unrelated sectors to cross-subsidise failings in another sector,” he said.

“We were also concerned the model prioritised payments of fees to the scheme administrators and external dispute resolution scheme ahead of anyone else.

“Why should brokers be forced to pay towards AFCA fees and higher scheme administration costs for shortcomings in another sector?

“The forecast increase in payments relates to failings in the financial advice sector, not the broking sector, and I don’t want to see our industry unfairly penalised.”

FBAA regulatory compliance specialist David Carson said the financial burden of unpaid determinations should not go beyond relevant stakeholders.

Carson recommended that the government make a financial contribution and said it already collects too much money from the broking industry through fees and levies.

“Government can’t continue to look at industry as a bottomless supply of money,” Carson said.

“We recognise there are consumers who are affected by the actions of bad actors, and we support measures designed to assist them.

“However, this scheme is barely 12 months old and we already have a problem. We don’t want to see honest, hardworking businesses deprived of vital income, especially when the failures in this scheme substantially lie at the feet of government and regulators.”

The MFAA stressed in its submission that the CSLR must operate as a safety net, not a mechanism to shift costs onto sectors with no connection to misconduct or unpaid determinations.

“A number of these proposals would result in other industries subsidising unfunded claims from the advice sector,” MFAA CEO Anja Pannek said.

“As a matter of principle, we do not support cross-subsidisation whatsoever. The integrity of the scheme depends on linking financial responsibility directly to the source of consumer harm.

“Extending special levies to brokers would be unfair, disproportionate, and inconsistent with the purpose of the CSLR.”

Pannek highlighted that brokers already contribute to the CSLR through the annual levy framework, as well as ASIC levies, AFCA fees, and hold professional indemnity insurance.

“To ask these small businesses to subsidise unrelated parts of the financial sector through a special levy is inequitable,” she said.

Background to the CSLR

The cost of the CSLR has come under scrutiny after costs have blown out, driven mostly by the collapses of firms Dixon Advisory and United Global Capital (UGC).

Assistant Treasurer and Minister for Financial Services Daniel Mulino was notified in July that the CSLR’s estimated claims costs relating to personal advice in 2025–26 were $67.3 million, exceeding the $20 million limit on levies that can be applied to the advice subsector to fund claims.

That triggered the option available to the minister under the CSLR legislation to raise a special levy to pay for the excess costs.

Moreover, figures released in February showed levy estimates for the FY26 had roughly tripled to a combined $77.97 million across all subsectors, from $24.1 million a year before.

As it stands for FY26, the credit intermediation subsector – which includes brokers – is expected to pay $1.8 million, down from the original estimate of $2.7 million as part of the CSLR.

CSLR levies were reduced by 32 per cent in July, following revised estimates.

First launched in 2024, the CSLR is an independent, not-for-profit body authorised by the Australian government that facilitates the payment of up to $150,000 in compensation.

The organisation aims to offer recompense to consumers who have received a favourable determination from the Australian Financial Complaints Authority (AFCA), but haven’t been paid by the financial firm responsible for the complaint due to insolvency.

[Related: Consultation into CSLR special levy launches]

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Will Paige

AUTHOR

Will Paige is a senior journalist at mortgage broking title, The Adviser.

He writes news and features about the Australian broking industry and property market, reporting on regulation, lending trends, banking and emerging technology.

Before joining The Adviser in 2024, Will covered M&A and debt financing news at London-based publication TMT Finance. He has previously written about business and finance news for a variety of media brands including Insider Intelligence, The Sunday Times Fast Track and Alliance News. 

Contact Will at: william.paige@momentummedia.com.au.

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