The long-awaited Compensation Scheme of Last Resort (CSLR) – proposed by the 2017 Ramsay Review and backed by the Banking Royal Commission – commences operations today, tasked with delivering redress to people who have suffered financial services misconduct.
The CSLR will provide up to $150,000 in compensation to eligible consumers who have experienced misconduct by a financial firm, where the firm has not made recompense due to insolvency.
The scheme is now an important part of Australia's consumer protection framework and aims to alleviate the distress of consumers when other avenues for redress are unavailable. In turn, its existence will support confidence in the financial services sector.
Commenting on the launch, inaugural CSLR Chair Jo-Anne Bloch said: “Previously, compensation options were limited and often inaccessible in cases of insolvency”.
“Large sums were simply written off, with no second chances to recoup the losses. The CSLR provides a crucial safety net,” Ms Bloch said.
Inaugural CSLR CEO David Berry said:
“People left without redress for misconduct suffer both financial and emotional stress.
“Our task is to ensure that those who have experienced financial loss through no fault of their own receive recompense, in line with the legislation that underpins our work.”
Mr Berry acknowledged the financial support that industry was providing to the compensation scheme, through the levies on the sub-sectors covered in the legislation.
“By having contributions from industry, the scheme will not only be able to compensate eligible claimants but will also encourage industry to support strong standards, enhancing trust and confidence in the financial services sector,” Mr Berry said.
“We are focused on delivering a scheme that operates efficiently, economically and effectively,” he assured industry.
“The Compensation Scheme of Last Resort will strengthen consumer trust and confidence in Australia’s financial system,” said the Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services.
“The compensation scheme of last resort will strengthen consumer trust and confidence in Australia’s financial system.
“This scheme will give victims an avenue for redress when things go wrong.
“The government stands with consumers to ensure there are robust protections in place for them.
“The government ensured that the Hayne Royal Commission was established and is proud to implement one of its final recommendations,” continued the Assistant Treasurer.
To be eligible for compensation, claimants must have experienced financial misconduct – as determined by the financial services sector ombudsman, the Australian Financial Complaints Authority (AFCA) – related to one or more of the financial products and services covered under the scheme.
These include matters such as advice on investments, trading stocks or bonds, direct borrowing from a financial company, or assistance with borrowing, such as through a mortgage broker.
Eligibility is determined through a three-step process:
- Lodging a complaint with AFCA about misconduct by a financial firm;
- Completion of the AFCA complaint process with the awarding of compensation;
- The failure of the financial firm to pay the awarded compensation, which must be reported to AFCA.
Once these steps are completed, consumers can apply for compensation from the CSLR.
CSLR levies will be collected from credit intermediaries, credit providers, licensees providing financial advice, and securities dealers. The levies are calculated by the Australian Securities and Investments Commission (ASIC) in accordance with federal legislation. The CSLR is managed independently and operates under parliamentary legislation.
About us:
About the Compensation Scheme of Last Resort
The Compensation Scheme of Last Resort (CSLR) is an industry-funded scheme offering protection to individuals harmed by the actions of financial institutions. It ensures that eligible individuals, following a determination awarding compensation from the Australian Financial Complaints Authority (AFCA), receive compensation of up to $150,000.
The CSLR's primary objective is to provide redress to claimants who have secured a favourable determination from AFCA, yet have not received compensation from the financial firm generally due to insolvency.
The CSLR is managed independently and operates under parliamentary legislation. It is a vital part of Australia’s financial ecosystem, stepping in to provide relief to victims of financial misconduct, who may otherwise struggle to obtain compensation.
For more information, visit: https://www.cslr.org.au/