A milestone has been reached in the establishment of the Compensation Scheme of Last Resort (CSLR) with the CSLR Board determining the estimate for the initial levy to fund claims from eligible consumers who have been the victims of financial misconduct.
The CSLR Board has provided $241 million as the estimate of the cost of meeting compensation claims and costs in relation to complaints that were lodged with AFCA between 1 November 2018 and 7 September 2022. This falls within the annual cap of $250 million as set out in the legislation for the CSLR.
The figure is an estimate. CSLR engaged the services of a leading actuarial consultancy, Finity Consulting, to conduct analysis and modelling and to ensure compliance with legislative requirements. The Board also engaged a second actuarial consultant, Taylor Fry, to review the analysis undertaken by Finity Consulting and assure a robust quality assurance mechanism.
This estimate is the first to be provided under the legislative framework for the CSLR passed by the Australian Parliament in June 2023. The main establishment legislation and associated Levy Act 2023, Levy Regulations 2023 and Levy (Collection) Act 2023 set out the levy process for the establishment of the CSLR, and for subsequent years.
The legislation provides Federal Parliament with the opportunity to object to this estimate through a disallowance process. CSLR Ltd has registered the legislative instrument for the estimate with the Federal Register of Legislation. Once 15 parliamentary sitting days has elapsed, the Australian Securities and Investments Commission (ASIC) will determine the levy for the relevant financial firms and collect the levy on behalf of the Federal Government.
The legislation requires payment of this first, establishing levy by the 10 largest banking and insurance groups as determined by income reported to the Australian Taxation Office for 2021-22.
The funding will pay for compensation claims of up to $150,000 to eligible consumers who have been the victims of financial misconduct relating to personal financial advice, credit intermediation, securities dealing or credit provision. The complaint must also fall within the Rules of the Australian Financial Complaints Authority (AFCA) and the consumer must have received a determination in their favour which awards compensation.
If the financial firm is insolvent and unable to pay the compensation awarded, and all reasonable steps have been taken to seek payment, the consumer can lodge a claim with the CSLR.
The initial levy estimate includes provision for the majority of claims involving Dixon Advisory and Superannuation Services (DASS). DASS went into administration in January 2022, prompting a large number of complaints to be lodged at AFCA over subsequent months.
“We are pleased to announce this important milestone as an important step towards the CSLR being able to pay the compensation claims it will start receiving from April 2024,” the Board said in a statement.
“This has been a significant undertaking, as this levy is the first of its kind. It was important that we had a robust and rigorous process to be able to make a best estimate based on the best information available.”
The full independent report and more information on the estimate are available on the CSLR website.
Legislation to establish the CSLR was passed in June 2023 and the scheme is scheduled to start receiving claims in April 2024.
The CSLR is designed to provide compensation for eligible complainants who have a determination in their favour from the Australian Financial Complaints Authority (AFCA), but the financial firm has become insolvent or cannot pay. Compensation of up to $150,000 may be available if a complaint falls into one of four financial sub-sectors specified in the legislation:
- personal financial advice
- securities dealing for retail clients
- the provision of credit (where a financial firm provides funds) or
- the arranging of credit (where someone like a mortgage or finance broker arranges funds).
As operator of the scheme, CSLR Ltd will be responsible for considering applications for compensation and making compensation payments to eligible consumers.
The CSLR’s claims process and oversight structure ensure the CSLR process is free for claimants. You can read more about the CSLR here.
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