Howarth flags possibility of sector cap reduction for CSLR

Speaking at a Financial Services Council (FSC) breakfast event in Sydney on Wednesday morning, the shadow minister said he was “shocked” to even learn about the Compensation Scheme of Last Resort (CSLR) and that “people have to pay for mistakes of others”.

“It was crazy to me, but that’s where it’s at,” Howarth said.

The CSLR is currently in its second levy period, having already completed the pre-CSLR funding period, in which the 10 largest banking and insurance groups paid the initial $241 million, and the first levy period that saw the federal government cover $4.8 million from three months of the scheme’s operation.

The government was initially set to cover the first 12 months of the scheme’s operation.

“Some of the points that the Coalition have made and will continue to make is, firstly, the government, the Labor government, with the support of the Greens in the Senate, they need to stick to their word around paying for the first 12 months of it, because they’re not,” Howarth said.

“The government said that they would pay for the first 12 months of that cost, and they haven’t. They basically skipped it and paid for three months. That’s not good enough, and it goes to character and goes to can you trust.”

According to the shadow minister, it is unfair that the cost of the first 12 months is being “worn” by the advice community and other financial services sectors.

“The other thing around the CSLR is … the original intention was to have it capped at about $10 million per year, rather than the $20 million that it is,” Howarth said.

“But I think the Coalition would look at that, because if you capped it, it would sort of immediately reduce the fees back to about $650 a year, as opposed to what it currently is.”

Speaking with ifa in May, Financial Advice Association Australia’s (FAAA) general manager policy, advocacy and standards, Phil Anderson explained that while the sector cap is $20 million, the Financial Services Minister has a variety of options available to him to deal with a levy that would exceed the sector cap.

“He’s got power up to $250 million total spend to levy as he wishes,” Anderson said.

“He could attribute all of it to the advice profession. He could spread it over a broader base of sectors above and beyond those who are already covered by the CSLR, or he’s got the option to seemingly have CSLR pay out in instalments, so clients don’t get all of the money they’re entitled to in the one year.”