MFAA demands Treasury explain broker CSLR levy surge

The special levy sits alongside ordinary annual funding, which the CSLR operator’s revised estimate put at $2.1 million for credit intermediation.

Treasury’s two-week consultation opened on 21 September, testing the waterfall framework announced in Financial Services Minister Daniel Mulino’s August reform package.

The $170.26 million proposal comprised $10 million from financial advice, $40 million from responsible entities of managed investment schemes and $120.26 million across 21 retail-facing subsectors.

Advice’s contribution supplements its $20 million annual levy. Tier 1 permits another $20 million, while connected sectors can contribute up to $40 million each through Tier 2 before remaining costs reach Tier 3.

The funding pressure reflects advice-sector costs estimated at $190.26 million, exceeding its ordinary $20 million annual cap, with the revised scheme-wide estimate reaching $198.07 million.

The special levy determination was registered on 12 October and is listed as in force on the Federal Register of Legislation.

In its submission, the MFAA argued that Treasury should establish that the “available contribution from the primary sub-sector has been appropriately applied and that all sub-sectors with a substantive connection to the underlying losses have been identified”.

Beyond reconsidering individual contributions, the association wants Treasury to explain its allocation decisions so affected sectors can better understand their potential exposure in subsequent years.

“The MFAA also considers that Treasury should clearly explain the methodology and reasons supporting the final allocation,” the submission said.

“This is particularly important in the first application of the waterfall and will provide affected sub-sectors with greater certainty about how the framework will operate in future levy periods.”

MFAA pushes for larger advice contribution

The association’s first recommendation would double advice’s proposed Tier 1 contribution to $20 million, arguing that sectors more closely connected to the losses should bear the available contribution before costs move elsewhere.

“Given the scale of the losses attributed to the financial advice sub-sector, the MFAA considers that the full Tier 1 contribution should be applied before additional costs are distributed to sub-sectors with a more limited or no substantive connection to the underlying losses,” the MFAA said.

“This would be consistent with the principle underpinning the waterfall that costs should, as far as practicable, be allocated first to the sub-sectors most closely connected to the consumer harm.”

Its second recommendation focused on whether superannuation trustees’ involvement in pathways to Shield and First Guardian investments warranted a greater Tier 2 contribution, calling for Treasury to examine evidence held across the complaints and regulatory system.

“Treasury should assess the available information, together with relevant evidence available to ASIC, AFCA and the CSLR operator, to determine whether the involvement of the superannuation trustees sub-sector formed a substantive part of the pathway to consumer loss,” the association said.

“Regardless of whether a substantive connection is established, the MFAA recommends that Treasury explain the evidence and basis for its assessment for its assessment as part of the final allocation.”

Broker allocation raises questions over cost burden

Turning to credit intermediaries’ Tier 3 contribution, the association sought a clearer explanation of the allocation, stressing that ASIC’s regulatory workload should not be confused with a sector’s responsibility for the compensation shortfall.

“It is important to be clear about why credit intermediaries are being allocated this amount. The Tier 3 allocation is based on ASIC regulatory effort – broadly, the resources ASIC uses to regulate each sub-sector. It is not a measure of misconduct, consumer harm or responsibility for the losses that have led to the special levy,” it said.

The MFAA also urged Treasury to look beyond the licensees legally responsible for paying, warning that the allocation could flow through to representatives and brokerages through their commercial arrangements.

“In particular, the prescribed metric for credit intermediaries may result in costs imposed at the Australian credit licensee level ultimately being passed through to credit representatives and individual broking businesses through higher fees and charges,” it said.

“This is particularly relevant given the predominantly small-business composition of the mortgage and finance broking sector. Costs passed through to individual brokerages may place a disproportionate burden on smaller businesses with limited capacity to absorb additional charges.

“Treasury should therefore consider the practical and economic impact of the allocation across the sub-sector, and not only the immediate levy liability of the entities on which the levy is imposed.”

However, the MFAA acknowledged that it lacked sufficient evidence to answer Treasury’s question of whether the allocation threatened sector-wide viability.

Yet it nevertheless sought consideration of the levy alongside cumulative regulatory and compliance costs.

The association’s policy submission comes after mortgage and finance aggregators condemned the elevenfold increase in the CSLR special levy for credit intermediaries, with aggregator chiefs questioning why brokers should help cover a financial advice shortfall.

[Related: CSLR levy jumps $60.7m after revision]