18 March 2024
The Compensation Scheme of Last Resort (CSLR) has determined the estimates for the 1st and 2nd levy periods that will fund claims from eligible consumers who have been the victims of financial misconduct.
As outlined in the legislation for the CSLR, the 1st levy period will be funded by the Australian Government and the 2nd levy period by the sub-sectors of the financial services industry that are covered by the CSLR.
This is in addition to the already announced pre-CSLR complaint estimate for the levy that will be paid by the 10 largest banking and insurance groups in the establishment phase of the CSLR.
It is the responsibility of the CSLR to determine estimates that it reasonably believes to be the cost of the compensation scheme in each year. The Australian Securities and Investments Commission (ASIC) will issue the levy for each financial firm and collect the levy payments.
1st Levy Period Estimate
CSLR has provided a 1st levy period estimate of $4.8 million, which falls within the scheme’s annual levy cap of $250 million. As outlined in the legislation, the 1st levy period estimate will be funded by the Australian Government. (See the notifiable instrument.)
This estimate is expected to meet eligible compensation claims and costs from the CSLR’s commencement on 2 April 2024 to 30 June 2024.
While financial firms will not contribute to the 1st levy period, CSLR notes that the estimate falls within the legislated annual levy cap of $20 million for each subsector, with the estimate for each sub-sector being:
- Financial advice $2.4 million
- Credit provision $0.7 million
- Credit intermediation $0.8 million
- Securities dealing $0.9 million
2nd Levy Period Estimate
In addition, CSLR has provided a 2nd levy period estimate of $24.1 million, which also falls within the scheme’s annual levy cap of $250 million and within $20 million subsector cap.
This estimate is expected to meet eligible compensation claims and costs from 1 July 2024 to 30 June 2025. The estimate for each sub-sector is:
- Financial advice $18.5 million
- Credit provision $1.5 million
- Credit intermediation $1.8 million
- Securities dealing $2.3 million.
A summary to assist entities in calculating the leviable amounts per entity can be viewed on the ASIC website.
The 2nd levy period estimate is subject to a “disallowance” period, with the Federal Parliament having the opportunity to object to the estimate within 15 parliamentary sitting days of the legislative instrument being published on the Federal Register of Legislation.
Once 15 parliamentary sitting days has elapsed, ASIC will issue the levy for each of the financial firms and collect the levy on behalf of the Federal Government.
The estimates for the 1st and 2nd levy periods are based on actuarial principles, as required by legislation. The CSLR engaged the services of a leading actuarial consultancy, Finity Consulting, to establish a policy for determining the estimates and to conduct detailed modelling and analysis for each estimate. This work was reviewed by a second, independent actuarial consultancy, Taylor Fry. A full copy of the report from Finity is available on the CSLR website.
“These latest estimates are another milestone towards the CSLR being able to meet compensation claims from the victims of financial misconduct,” the CSLR Board said.
“We are committed to a robust and rigorous process that allows us to make the best estimates based on the best information available.”
Background
These latest estimates follow the CSLR announcement in January providing $241 million as the initial funding estimate for the levy that will be paid by the by the 10 largest banking and insurance groups in the establishment phase of the CSLR. The initial levy estimate includes provision for the majority of claims involving Dixon Advisory and Superannuation Services (DASS)
The legislative framework for the CSLR passed the Australian Parliament in June 2023 and the scheme is scheduled to start receiving claims from 2 April 2024.
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 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, securities dealing for retail clients, the provision of credit or the arranging of credit.
You can read more about the CSLR here.
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About
The Compensation Scheme of Last Resort (CSLR), which is scheduled to begin operations on 2 April 2024 , is a scheme designed to make payments to eligible consumers where determinations by the Australian Financial Complaints Authority (AFCA) for compensation remain unpaid in the financial sub-sectors specified in legislation. The CSLR will facilitate the payment of up to $150,000 in compensation to consumers who meet the eligibility criteria. For more information visit www.cslr.org.au.
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