Industry demands clarity as CSLR costs soar 82%

• Dixon Advisory and Superannuation Services Ltd

   

   

• United Global Capital Proprietary Ltd

• Brite Advisors Pty Ltd

• Shield Master Fund

• First Guardian Master Fund

• Australian Fiduciaries Ltd

The CSLR estimates a significant volume of claims from these failures, notably with an expected 898 determinations relating to Dixon Advisory in FY27, with an assumed average claim size of approximately $142,000.

Crucially, the $137.5 million estimate does not include compensation for the recent failures of Shield Master Fund and First Guardian Master Fund, which affected around 11,800 investors.

This exclusion is due to ongoing regulatory and remediation uncertainty, but the CSLR notes that a revised estimate – expected mid-2026 – will likely be materially higher if these claims are paid during the levy period.

While the broking industry is expected to pay around $2.2 million in CSLR levies in FY27, questions are now being asked as to how the ongoing blowout in CSLR costs will be funded.

Currently, there is a cap of $20 million per subsector. However, given the personal advice sector has exceeded the subsector cap for the past few years, the Treasury is looking at how a special levy could be imposed to cover the costs.

Assistant Treasurer and Minister for Financial Services, Dr Daniel Mulino, has yet to determine how the $47.3 million special levy for the FY26 period will be funded. This includes options such as spreading compensation over time, levying only the financial advice subsector, or issuing a wider special levy across multiple subsectors.

'The scheme in its current form is not sustainable': Anja Pannek

Reacting to the new CSLR estimates, the Mortgage and Finance Association of Australia (MFAA) has emphasised that the scheme should not be funded through cross-subsidisation between subsectors.

MFAA CEO Anja Pannek said: “There continues to be negligible levels of unpaid determinations coming out of the broking sector,” she said, flagging that there were zero in-scope complaints about brokers as at 31 May 2025, the only subsector in this position.

“The MFAA continues to support the CSLR in principle and recognises its important role in providing consumer compensation. However, the scale of the FY27 estimates highlights the need for urgent action, to ensure the scheme is sustainable and that the underlying causes of misconduct are addressed.

“With an initial estimate of $137.5 million, we have seen an almost doubling of the total funding required for the Scheme,” the MFAA CEO said and noted that this is largely due to high levy costs in personal financial advice and highlighted that this does not include amounts for unresolved Shield and First Guardian matters.

According to Pannek, these yet-to-be-determined amounts are “likely to cost hundreds of millions of dollars, representing significant forward-looking uncertainty for the scheme”.

Indeed, the MFAA CEO continued: “The scheme in its current form is not sustainable. With what we are seeing in the personal financial advice sub-sector, the FY2027 estimates highlight special levies, which were originally anticipated for ‘black swan’ type events, may be required for years to come.

“With FY26 special levies still unresolved and the outcomes of the CSLR post-implementation review still unknown, we are calling for clarity for all industries contributing to the scheme.

“We must avoid a situation where the financial services sector is trapped in a ‘groundhog day’ of repeated compensation events, permanent special levies and ongoing uncertainty. Allowing cross-subsidisation between sub-sectors creates a significant moral hazard.

“It means that industries such as mortgage broking will be penalised for failures occurring in other parts of the system. The priority must be addressing the root causes of misconduct and preventing future consumer harm.”

The MFAA CEO said regulators should focus their efforts on subsectors where misconduct is rising and not impose additional costs or regulatory burden on sectors, such as broking, where misconduct remains low.

Similarly, Finance Brokers Association of Australia managing director Peter White AM noted that the vast majority of the levy relates to the personal advice sector, as opposed to mortgage brokers, adding: “In fact, the broker levy of $2.2 million represents just 1.6 per cent of its $137.5 million total.

“While this is an increase on the previous financial year, it shows that on the whole brokers are doing the right thing, but of course we do want to see this figure trending down.

“There’s still more hard work ahead to improve these outcomes as we strive to reduce the cost of this levy to brokers."

White continued: “We’ve always said brokers shouldn’t be forced to bear the brunt of shortcomings that are primarily taking place in other sectors.”

'Another blow to law-abiding financial advice businesses'

The Financial Services Council (FSC) has also called for the cost of the Compensation Scheme of Last Resort (CSLR) to be brought to sustainable levels, given the FY27 levies are likely to be materially higher than $137.5 million.

The CEO of the FSC, Blake Briggs, said the scheme must be reformed to ensure it "remains genuinely ‘last resort’ and targeted towards those most in need".

“The FY2027 estimate again includes another significant breach of the financial advice sub-sector cap, this time by a staggering $106.9 million. Without urgent reform to the CSLR’s design, special levies on industry will again be required to meet the gap for the foreseeable future.

“This is another blow to law-abiding financial advice businesses who face continued cost pressures and who will again be called on to pay up to the $20 million sector sub-cap, and potentially above it, for the wrongdoing of others," he said.

The FSC said it was against the repeated use of ‘special levies’ as a routine funding mechanism, given that they are “inherently unpredictable, undermine industry confidence, and function as a de-facto tax on business”.

Briggs said: “The wider financial services sector is willing to do its part to meet the existing shortfall, provided the costs are distributed widely and fairly. A diversified approach avoids disproportionate impacts on individual subsectors and reduces the risk of cross-industry disputes.

“However, socialising the cost of underwriting investment losses is not a sustainable long-term solution for a scheme that is on track to have continued cost blow outs into the foreseeable future.”

The FSC has therefore also urged the Assistant Treasurer to set out a clear pathway for reform to ensure the scheme is sustainable for the consumers who need it and aligned it to its original policy intent to provide compensation as a last resort.

[Related: CSLR levy soars to $137.5m and may rise further]