Mortgage broker association flags ‘shifting costs’ of CSLR to other subsectors

When the Compensation Scheme of Last Resort (CSLR) released its initial levy estimate for the upcoming financial year, it came with an even larger bill than advisers had expected, with the total cost for 2025-26 skyrocketing to $77,975,000 across all sectors.

The breakdown across industries hits financial advisers the hardest, with the vast majority of $70.11 million being attributed to the subsector – well in excess of the $20 million subsector cap.

The decision on how the additional $50 million will be paid has not yet been announced and cannot officially be made until after 1 July – after the federal election.

Ultimately, all that is for certain is that current Financial Services Minister Stephen Jones will not be the one making the final decision following his retirement announcement in January.

Instead, it will either fall to whoever takes over from Jones if Labor wins the election or current shadow financial services minister Luke Howarth if the Coalition forms government.

Speaking with ifa in February, CSLR chief executive David Berry explained that there are a range of options for the minister.

“They’ve got the three options we’ve talked about previously, which is ask us to go slow, they can ask us to pay in instalments, or they can levy other subsectors – or a combination of any of those,” Berry said.

“Once that minister has made that call and said, ‘OK, this is how we intend to fund the special levy’, that’s within their discretion as to the mix or how they do that, but they don’t have the discretion to just approve it. They’ve got to then put that through the parliamentary process, and it will go through a disallowance process again for the upper and lower house to approve.

“Once they’ve approved it, ASIC will be able to administer it.”

The potential for the levy to be spread across other subsectors is not one that sits well with the Mortgage and Finance Association of Australia (MFAA), saying in its submission to Treasury’s review of the CSLR that it is “concerned about the increasing levy burden on credit intermediaries, despite no clear evidence of future unpaid determinations”.

Mortgage brokers have an estimated levy for FY26 of $2.72 million – a far cry from the burden on financial advisers – however even this is disproportionate, according to the MFAA. Indeed, just 38 per cent of that figure, or about $1.03 million, is related to actual compensation.

As a result, the MFAA is worried about that its members will be caught up in covering the $50 million allocated to financial advice above the subsector cap.

“Spreading it across multiple sub-sectors would compromise fairness and proportionality, placing an undue burden on industries with minimal CSLR claims, such as small broking businesses,” the MFAA said in its submission.

In its recommendations, the association argued that the minister must consider how the use of a special levy would impact both the “affected sub-sector and the broader financial system”.

“The CSLR’s current structure allows losses caused by one sub-sector to be distributed across others. This risks creating imbalance between the cause of harm and the impact on other sectors,” the MFAA said.

“Ministerial discretion should not set a precedent that increases cross-subsidisation or removes the incentive for high-risk sectors to improve standards and prevent future consumer harm.”

In its submission to the inquiry into the collapse of Dixon Advisory and its impact on the CSLR last year, the MFAA also argued that it would be unfair for mortgage brokers to get slugged for complaints that have nothing to do with the credit intermediary subsector.

This sentiment was shared by both the Australian Banking Association (ABA) and the Insurance Council of Australia, with the ABA adding that many of its members have already covered a chunk of the compensation for the collapse of Dixon Advisory through the $241 million pre-CSLR levy – $203 million of which related to Dixon.

“Any application of ministerial discretion must not exacerbate further cross-subsidisation by creating a precedent which does not encourage subsectors who have created losses [paid for by other subsectors] to uplift their own standards and reduce/prevent future harm to Australian consumers,” it said.

However, responding to these concerns last year, Financial Advice Association Australia (FAAA) CEO Sarah Abood said the sentiment seems “a little self-interested”.

“The thing that I’m raising an eyebrow at is some of the submissions saying that amounts over the cap shouldn’t be shared more broadly,” Abood said at a media briefing during the FAAA Congress in November.

“I’m not sure on what basis there’s a view that we ought to be bearing that additional cost.”

The FAAA’s Phil Anderson has also argued that regardless of how the minister chooses to address the shortfall, it should not be advisers bearing the additional $50 million.

“We’d make the point very, very strongly: both Dixon Advisory and UGC are deep down product issues. They are situations where advice is being used as a vehicle to sell in-house product that has ultimately failed. I don’t think that small business financial advisers who do not provide product should be caught out having to pay for product failures,” Anderson told ifa earlier this year.