‘I don’t even believe in the CSLR’: Howarth floats scrapping scheme

Speaking at Momentum Media’s Election 2025 breakfast event in Sydney on Thursday morning, shadow assistant treasurer and shadow financial services minister, Luke Howarth, said he believed the Compensation Scheme of Last Resort (CSLR) has failed and argued that it should be scrapped entirely.

In his address, Howarth reiterated his belief that the CSLR was "pretty well a disaster" and said he doesn't agree with the premise of the scheme.

While he outlined that a Coalition would reform the scheme, he told financial services delegates at the event that “I don’t even believe in the CSLR”.

In a Q&A session following his address, he said: “I think the whole thing’s stupid. It's ridiculous ... It's not a go at anyone who's running it … the reality is it shouldn’t have been set up to start with.

“So, we don't want to expand it. That's the last thing we want to do. We want to get rid of it, ultimately, and we want to reduce the cost, until we can do that, for advisers.”

At the Election 2025 event, shadow treasurer Angus Taylor confirmed that the Coalition would “fix the CSLR's costs, making it fair and sustainable”, suggesting that the fee structures were “onerous”.

“We're conscious of the fact that this has been a big impost on your industry,” he told advisers in the room, adding that the cost of supporting the scheme was “preventing people from serving their clients” and “making it harder”.

Delving into how the Coalition would do this, Howarth later said that – should he become financial services minister following the federal election – he would make fixing the CSLR a “top priority”.

“Earlier this year, it was revealed, as well, that financial advisers, mortgage brokers and other sectors are set to be slugged with record CSLR levies this year, and urgent action is needed to get the cost down,” he said.

He slammed the Albanese government for enabling the costs of the scheme to have “blown out $77 million for the next financial year alone”, and criticised its move to announce a review of the scheme just “weeks before the election”.

“Now it's kicking the can down the road.”

“The advice community has been outraged by this [scheme] for at least the last two years. It's too little, too late.”

“The only chance you've got to get this cleaned up is if a Coalition government is elected in its own right," he continued.

Howarth said that if he were to be the next financial services minister, he would “look at immediately reinstating the sub-sector cap of $10 million”, which was the Coalition’s original policy.

“This will immediately halve the next industry levy… bringing it down to around $650.”

“We'll also rule out any additional special levies for this year," the shadow financial services minister continued.

“And importantly, we want to exclude the ‘but for’ compensation”, which he described as “a rort”, given it was compensation for people who did not necessarily have a capital loss.

“I don't agree with the premise of the scheme. There is clearly a moral hazard,” he continued, adding that the ‘but for’ claims are seeing people reimbursed for investments that didn’t provide expected yields.

“If people invested $1 million and they get $1.2 million back, they go: 'Oh, we should have got 1.4 [million], we want another 200 grand.' That's not the last resort. You know, that was not what was intended as part of Michelle Levy’s review or the [banking] royal commission. So that has to go, and then that's what we'll be focusing on.

“The scheme is not a last resort scheme anymore. It's guaranteeing investment performance. It is clear that we need to limit or filter out these claims when there's a CSLR footing the bill.”

He continued: “Advisers deserve certainty, not a government that sits on its hands and lets this spiral further and further out of control and urgent action as needed.”

Speaking at the event, Howarth said that the Coalition would also look to remove "phoenixing situations" (as seen in the Dixon Advisory Collapse) where “vertically integrated advice businesses shed liabilities for product failures”.

He also pledged to reduce “excessive administration costs” (currently about $6 million), which make up about a third of the levy.

What does the Labor want to do about the CSLR?

Outgoing Financial Services Minister, Stephen Jones, also acknowledged that the CSLR “absolutely was not designed to provide guaranteed investment opportunities when something goes wrong”.

“The very nature of investing is that sometimes things don't go as we hope they would,” he told the Election 2025 event.

The financial services minister told delegates: “It is quite clear to me that we don't have stable, sustainable settings of the CSLR. Reform is needed. Anything we do in this area will mean altering rates.

“While everyone in this room might be cognisant of the fact that we’ve got some problems in CSLR, I guarantee you that everyone outside this room, in the world at large, does not understand. So, a deliberative approach is necessary, and it is why I asked the Treasury to conduct a rapid review to ensure that we have a focus on these problems.

“I know a lot of people want a quick fix. I wish there was one … I think we do need to go back and have a look at it.”

However, Minister Jones said he believed that there was “no universe and no parliament” that he could imagine that “would move forward and say: ‘We shan’t have a CSLR’”.

“So, we need to ensure that moving forward, we have stable settings," Minister Jones said.

"Once you make two decisions – the first being that we have a compensation scheme of last resort (not first resort) and that it is industry-funded. We then only have two decisions to make. What are the events that are compensated? And how do you distribute that?”

It follows earlier comments from Minister Jones that the review of the CSLR would not be expanded to include managed investment schemes (MIS).

“I want to ensure that what’s occurring doesn’t become a backdoor mechanism to drag that stuff in,” Jones said in reference to MISs last month.

“The conscious reason for doing that, it was going to add a whole bunch of risk into a compensation scheme that I don’t think is sustainably manageable.”