Slow CSLR claims result in levy underspend

The levies were as follows:

• Financial advice, $18.5 million.
• Credit provision, $1.5 million.
• Credit intermediation, $1.8 million.
• Securities dealing, $2.3 million.

The 4,214 credit intermediaries had to pay a minimum levy of $100 plus $33.85 per credit representative for the Compensation Scheme of Last Resort, on top of other levies already placed on the industry (such as the ASIC levy and AFCA costs).

According to the CSLR, while the volume of claims originally estimated for FY25 is still likely to eventually manifest - claims have “taken longer than anticipated” to reach the CSLR.

As such, several claims are expected to be received in FY26.

While precise details are not expected until after the conclusion of this financial year, the CSLR has outlined that there has been “multiple large-scale firm failures within the personal financial advice sector” in the past few years, with at least two of these failures potentially leading to more than 800 claims.

This includes Dixon Advisory & Superannuation Services (DASS), which went into administration in June 2024 and has contributed to the financial advice industry having to pay $5,709 per adviser to bear the financial burden (and may result in a special levy having to be levied on industry for FY26 to cover costs that are expected to exceed the $20 million subsector cap).

According to the CSLR, the projected underspend from FY25 - not yet disclosed - will be utilised to pay compensation in subsequent financial years and be offset against the FY27 levy estimate.

CSLR CEO David Berry commented: “These failures continue to significantly impact the amount of compensation likely to be paid in the coming financial years. The key driver to the timing of payments remains the speed at which the CSLR receives claims.

“The projected underspend will be utilised to pay compensation in subsequent financial years and be offset against the FY27 levy estimate,” Berry said.

Given the lower number of claims paid, the CSLR operating costs are also tracking below the levy estimate.

Controversy with the CSLR

The CSLR has been marred with controversy since its establishment in 2024.

The body was originally set up to offer recompense of up to $150,000 to consumers who have received a favourable determination from the Australian Financial Complaints Authority (AFCA) but haven’t been paid by the financial firm in question because it has gone insolvent. However industry has suggested that the system is unfairly penalising working businesses to cover the costs for the failings of others.

Indeed, costs have been blowing out as a result of several collapses in the financial services industry. For example, levy estimates for the financial year ending 30 June 2026 (FY26) saw the total skyrocketing to a combined $77.97 million across all subsectors.

This figure represented a threefold increase on the total estimate for FY25.

Credit intermediaries were estimated to pay $2.72 million, a 51 per cent increase on the previous financial year ($1.8 million). But the financial advice sector would exceed the $20 million subsector cap, to $70.11 million, driven by the collapse of firms Dixon Advisory and United Global Capital (UGC).

When compensation claims exceed a subsector’s levy cap, the minister may then impose a special levy to cover the excess, either on the responsible subsector or across multiple subsectors, as appropriate.

Questions are therefore being raised about how the Financial Services Minister would choose to apportion any special levy above $20 million, with the broking industry having urged the government not to burden brokers with a special levy.

The government held an inquiry into the issue earlier this year, with the Mortgage and Finance Association of Australia (MFAA) telling the Senate that spreading the levy across multiple subsectors would “compromise fairness and proportionality”. The association argued it would place an undue burden on industries with relatively small claims, such as broker businesses.

Other criticisms levelled at the scheme include concerns that consumers are being compensated for unrealised returns, rather than compensation for loss.

What does the government think?

Speaking earlier this year, former Financial Services Minister Stephen Jones MP acknowledged that the CSLR “absolutely was not designed to provide guaranteed investment opportunities when something goes wrong”.

“The very nature of investing is that sometimes things don’t go as we hope they would,” he told the Election 2025 event in April.

The former Financial Services Minister told delegates: “It is quite clear to me that we don’t have stable, sustainable settings of the CSLR. Reform is needed. Anything we do in this area will mean altering rates.

“While everyone in this room might be cognisant of the fact that we’ve got some problems in CSLR, I guarantee you that everyone outside this room, in the world at large, does not understand. So a deliberative approach is necessary, and it is why I asked the Treasury to conduct a rapid review to ensure that we have a focus on these problems.

“I know a lot of people want a quick fix. I wish there was one … I think we do need to go back and have a look at it.”

However, Jones said he believed that there was “no universe and no Parliament” that he could imagine that “would move forward and say: ‘We shan’t have a CSLR’.

“So we need to ensure that moving forward, we have stable settings.

“Once you make two decisions – the first being that we have a Compensation Scheme of Last Resort (not first resort) and that it is industry-funded – we then only have two decisions to make. What are the events that are compensated? And how do you distribute that?”

[Related: Government urged to not burden brokers with special levy]