The MFAA has backed the CSLR as a key consumer safeguard, yet cautioned Treasury against enacting blanket changes which could drive up costs.
The Mortgage and Finance Association of Australia (MFAA) has urged Treasury to take a light-touch, risk‑based approach to overhauling professional indemnity insurance (PII) as part of its post‑implementation review of the Compensation Scheme of Last Resort (CSLR).
In a submission lodged on Friday (13 February) in response to Treasury’s consultation on enhancing PII, the association said it supported the CSLR as an “important consumer protection mechanism” but stressed that proposals to strengthen PII must be assessed alongside supply, pricing and regulatory costs for licensees.
It further framed PII as the primary line of defence, with the CSLR operating as a backstop for rare cases where compensation could not otherwise be met.
The consultation, launched late last year, is testing whether a more robust PII scheme can reduce pressure on the CSLR – which covers unpaid Australian Financial Complaints Authority (AFCA) determinations up to set caps.
Treasury has previously flagged the need to balance stronger insurance settings with the long‑term sustainability and funding design of the scheme.
A ‘stable and heavily policed’ insurance landscape
A central plank of the MFAA’s case was that PII for mortgage broking had “stabilised materially” since Treasury last looked at the issue in 2021 – with improved insurer appetite, group policies via aggregators and more normalised premiums taking shape after the turbulence which followed the Hayne Royal Commission.
The submission also pointed to strengthened regulation and self‑regulation over the same period.
According to the MFAA, this included the introduction of the Best Interests Duty (BID) in 2021, rising professional standards, aggregator assurance programs and a “sustained low incidence” of AFCA complaints and unpaid determinations feeding into CSLR claims.
It argued that these settings underpinned a comparatively accessible and effective PII market.
Yet the MFAA noted its members are required to hold at least 2 million dollars in cover, on top of aggregator and lender accreditation rules – which demand evidence of current and adequate insurance.
The association said these overlapping checks meant PII in broking is “well‑established and heavily policed”, with compliance monitored through annual reviews and assurance processes.
Aggregator structures and targeted oversight
Treasury’s consultation paper raised concerns about representative networks, including the risk of duplicated cover or unclear accountability between licensees and authorised representatives.
Yet the MFAA countered that, in its sector, representative networks were typically built around aggregator models in which the aggregator holds the Australian credit licence and is responsible for compliance, risk and PII that covers its representatives.
It said that existing structures generally provided clear responsibility for PII coverage, claims handling and cost recovery, and that it did “not identify a strong case for structural change” to indemnity settings in this context.
On regulatory oversight, the submission accepted that ASIC’s initial licensing checks on PII adequacy provided a functional baseline but emphasised that these were by nature “point‑in‑time”.
The MFAA argued that ongoing assurance could be more effectively delivered through existing industry mechanisms such as annual aggregator reviews and lender accreditation.
If oversight was expanded, the association said it backed clearer triggers for follow-ups where a business model or structure signalled higher conduct or compensation risk – or major changes in activities.
It also called for more explicit guidance on how licence holders should document their assessment of PII adequacy over time, beyond simply confirming that a policy exists.
However, it cautioned that broader, more granular data collection across all CSLR‑levied sectors would increase compliance costs for firms and operational costs for ASIC – with consequences for industry funding levies.
It said any expansion of ASIC’s ongoing surveillance should be “risk‑based, targeted and proportionate” and justified by evidence linking the changes to improved CSLR outcomes.
Different risks, different minimums
ASIC’s RG 210 sets minimum expectations for cover, including adequacy of limits, scope and terms, and allows for exemptions or alternative arrangements in specific circumstances.
The MFAA says those minimums were broadly appropriate for credit intermediation, given the scale and nature of activities in the sector and the additional scrutiny applied through aggregators, lenders and industry bodies.
However, it argued that the same baseline may not fit all CSLR‑funded cohorts.
The association said that differences in business models, product complexity, client exposure and claim histories meant “a uniform approach is unlikely to be effective or proportionate”.
It added that any review of minimums should clearly distinguish between subsectors as opposed to “assuming equivalence of risk”.
The MFAA said it saw “no clear evidence” that increasing minimum cover levels or mandating a broader scope would materially ease pressure on the CSLR in its own patch, given the low level of unpaid AFCA determinations coming from the channel.
It also flagged potential unintended consequences if minimums were lifted, including insurers pushing up excesses – which it said could strain smaller licensees and have possible impacts on insurer participation and premium affordability.
The submission noted that current run‑off cover norms generally aligned with AFCA membership obligations and warned that extending these periods without clear benefit to CSLR sustainability risked further premium increases.
[Related: MFAA demands faster refinancing and fairer regulation]
