The ABA is calling for an overhaul of the CSLR, warning that without changes, the safety net risks double‑paying some victims and overcharging sectors that played little role in the original misconduct.
In a submission titled Reform options to support ongoing sustainability, the Australian Banking Association (ABA) set out eight recommendations to reshape the Compensation Scheme of Last Resort (CSLR), saying that the current settings risk double‑paying some victims and overcharging prudentially regulated sectors for failures elsewhere.
The ABA’s starting point is that CSLR payouts should always sit on top of other remedies, not alongside them.
To underline that principle, it said it wanted compensation adjusted for any amounts victims can obtain elsewhere and recouped if later recoveries change the final loss.
“This would better align the CSLR with its intended role as a genuine scheme of last resort and avoid double compensation,” the ABA said.
The industry group also said that the scheme needed more robust rights to chase money from wrongdoers and those connected to them.
It said it supported an expansion of subrogation powers, so the operator can recover a wider set of amounts from a broader range of parties, rather than relying mainly on levies from compliant firms.
On the scope of claims, the ABA wants the scheme to focus on direct financial losses rather than broader heads of damage.
The ABA backs a model where only lost capital is covered, saying that this best matches the CSLR’s backstop purpose.
Who gets levied – and when
A key part of the ABA’s paper deals with how exceptional levies are spread when a large failure exhausts standard funding.
The association is concerned that “connected” subsectors can be dragged into the Tier 2 levy waterfall based on loose links rather than a clear role in the harm.
It said it wanted that tightened so the second tier only captures sectors that were meaningfully involved.
Self‑managed super funds were another focus, with the ABA noting that trustees should be told upfront that SMSFs are outside the CSLR and that this exclusion should be written into the rules.
If the government chooses not to go that far, the association said it wanted SMSFs to help pay for the protection they receive and for any contribution model to avoid encouraging risk‑taking.
For the managed investment scheme sector, the ABA backs a flat levy across all schemes rather than a risk‑graded model that attempts to sort “good” and “bad” products.
The submission said this kind of design “is simpler, more transparent and easier to administer, and avoids the definitional and reputational difficulties of trying to distinguish between lower-risk and higher-risk schemes”.
The association also wants related entities within a corporate group on the hook before unrelated firms are tapped for special levies.
It is pushing for a formal mechanism that would allow the scheme to pursue other companies in the same group where they had retained value from the failed business.
[Related: MFAA presses for fair share of soaring CSLR bill]
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