‘Too little, too late’: What can advisers expect from the CSLR review?

In a statement on Friday, Minister for Financial Services Stephen Jones announced the government is directing the Treasury to undertake a comprehensive review of the Compensation Scheme of Last Resort (CSLR).

“This is all about ensuring the scheme remains sustainable into the future for consumers and for the industry,” Jones said.

While stressing his focus on consumers, Jones said Australians also need access to affordable high-quality financial advice, and as such the review will assess whether the scheme is meeting its objective in a way that is “sustainable for both companies and consumers”.

“Ensuring the scheme is sustainably funded will be an important focus of the review,” the minister said.

The review’s terms of reference note that its goal is to “ensure the scheme is delivering its intended objectives”.

“This will give stakeholders confidence in the scheme and support the outcomes of consumers,” it said.

Under the scope of the review, it will consider:

• How the CSLR is delivering on its intended objectives;
• How the CSLR funding model is formulated, including its potential impacts on businesses who fund the industry levy;
• How the powers of the CSLR Operator interact with delivery of the scheme; and
• The current scope of the CSLR and any related matters.

“The review should have regard of other current and recent reviews and inquiries as relevant,” it added.
CSLR chief executive David Berry told ifa that he welcomed the review, however noted that its scope is very broad and the election will likely slow the process down.

“With an election, they can start collecting all the information, but when they go into caretaker, they can't ask any questions, they can't go deeper. So, that will slow down when they'll be able to put out their findings,” Berry explained.

“I don't know their timing for findings. I suspect it's going to be later the year. That doesn't give a lot of time for the government to work out what they're going to do, because the Treasury won't make recommendations. It's not like a royal commission.”

Instead, he added, Treasury will simply lay out its findings and provide the details to the minister.

“The minister of the day is going to need to understand that there's action required quickly, and there's going to be some hard decisions, and they're going to have to step into them,” Berry said. “They are going to upset some people, but I believe whoever that minister is, I can help them navigate the noise on the consumer protection side.”

The Financial Advice Association Australia (FAAA) has made its stance clear that urgent action is needed.

Speaking with ifa, Phil Anderson, FAAA general manager policy, advocacy and standards, argued that a lot of the problems with the scheme’s operation are already “well known”, with a range of stakeholders detailing the issues in their submissions to the Senate inquiry into the Dixon Advisory collapse.

“We want action,” Anderson told ifa.

“We don't want sitting around for months waiting for action to be taken when there is no certainty of when that will occur.“

The problems are already known, the need for the government to take action has been fundamentally clear for a very long time.”

In a statement, shadow financial services minister was critical of the government’s handling of the CSLR, saying it has “become a disaster under Albanese's watch”.

“The eleventh-hour announcement of a review is too little, too late and urgent action is needed to get its costs down now. Changes are needed now, and it is disappointing that the Albanese government isn't ready to act,” Howarth said.

“The Albanese government has watched on as the CSLR's costs have blown out and now it is kicking the can down the road with just weeks before an election is called.

“If Labor is true to its form with the Quality of Advice Review implementation, financial advisers will be waiting years before this government acts.”

Crucially, he added, the blow-out in cost of the CSLR levy to $78 million for the 2025-26 financial year will see both financial advisers and mortgage brokers slugged with higher costs.

“Reform to stem these costs can't wait for yet another Albanese government review,” Howarth said.

“Albanese's minister promised more affordable advice but the botched roll-out of the CSLR has done the opposite. Australians are facing higher costs across the board, including financial advice.”

Sustainability of the CSLR

According to Berry, it is crucial for the CSLR to be sustainable so that it can help the people it was established to support – and changes are needed to ensure that it can.

“We will be making a very comprehensive submission, and we will be making it public as soon as we're allowed to,” he said.

“The things which we will put in there, there will be some people who won't be happy with what we put in. I think the industry associations will understand it, and they will accept it. Some they'll agree with and some they'll just say, ‘OK, I don't get it’.

“I do think that there's going to be some in government, some in AFCA [that won’t be happy] … But there's some things which I think will upset a few people, so we've got to work through how we make sure we manage that message ahead of it becoming public.”

Financial Services Council CEO Blake Briggs also raised concerns over the sustainability of the CSLR in its current form, pushing for the government to complete the review and reforms before making a decision on how the $50 million above the financial advice sub-sector cap is funded.

“It is in the interests of the government, ASIC, and consumer groups, as well as the industry and its customers, for the CSLR to be sustainable over the long term. Clearly this is not currently the case,” Briggs said.

Given that a decision around how to fund the increase in CSLR payments cannot be implemented until after 1 July 2025 at the earliest, the FSC said this should provide adequate time for a detailed review of the scheme and for measures to be introduced.

“The review should consider whether the scheme should continue to compensate consumers who have enjoyed significant capital gains, or instead focus on the needs of consumers who have incurred a loss,” Briggs added.

“It does not align with community expectations that 80 per cent of the compensation being paid by the scheme has been for foregone, hypothetical capital gains, not the actual losses a consumer has incurred.

“Treasury should also consider the significant bureaucratic cost imposed on the CSLR by the Australian Financial Complains Authority (AFCA), the Australian Securities and Investments Commission (ASIC) and the CSLR operator itself, who are together responsible for $17 million in anticipated expenditure, or over 20 per cent of the total expected levies.

“AFCA’s complaints management and administrative processes now contribute over $20,000 in additional costs per unpaid determination.

“This is not the scheme industry supported when it was originally implemented. The CSLR should be efficient and true to label, to make it a genuine ‘last resort’ option for consumers who have lost money due to poor financial advice.”