Advisers to shoulder load as CSLR piggybacks ASIC levy

The Government has moved to reintroduce the Compensation Scheme of Last Resort bill to the Parliament and, despite numerous submissions objecting to its funding arrangements, most of the burden will be carried by financial advisers and credit providers.

What is more, the Treasury explanation attaching to the legislation has detailed just how closely the industry levy arrangements underpinning the CSLR will closely mirror those underpinning the ASIC levy.

What has changed about the bill, and outlined by the Assistant Treasurer and Minister for Financial Services, Stephen Jones, is that measures have been added to reduce the incentive for financial firms to rely on the CSLR, and to facilitate better compliance with AFCA determinations. For example, ASIC must cancel an AFCA member’s Australian financial service licence and/or Australian credit licence if the CSLR provides compensation as a result of that member’s misconduct.

The Government previously introduced legislation to establish the CSLR on 8 September last year. That legislation proceeded to the Senate. In December 2022, the government identified an issue around the one-off levy, and so the CSLR legislation was not passed while further consultation was undertaken.

The maximum account of compensation payable under the CSLR is, as expected, capped at $150,000.

The bill, the Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Bill 2023 and the associated levy bills were scheduled to be debated late yesterday evening.

And despite multiple submissions to Treasury arguing that the funding of the arrangements should be broadened to include managed investment schemes, the legislation introduce yesterday  remains largely unchanged from the original exposure draft.

The legislation explanatory material states that, to be a relevant AFCA determination, the determination must relate to one or more of the following kinds of products or services:

• engaging in credit activity as a credit provider or otherwise; – ‘Credit activity’ (including when a person engages in a credit activity) and ‘credit provider’ are defined in the Credit Act.
• providing financial product advice that is personal advice to a retail client about at one or more relevant financial product; and – ‘Financial product advice’, ‘personal advice’, ‘retail client’ and ‘relevant financial product’ are defined in the Act.
• dealing in securities for a person as a retail client, other than issuing securities.

The legislation explanatory materials also make clear that where AFCA compensates a consumer because an AFSL has failed to pay an Australian Financial Complaints Authority (AFCA) determination, then “ASIC must cancel the AFSL held by the relevant entity against which the determination was made”.

“The cancellation of an Australian financial services licence or an Australian credit licence is not subject to discretion or merits review,” it said.

The Financial Services Council (FSC) was the first to welcome the introduction of the legislation with chief executive, Blake Briggs stating the Assistant Treasurer had got the balance right.

“The CSLR will establish an industry funded scheme to protect consumers who have incurred losses while not excessively burdening customers and well-run organisations that have done nothing wrong with the costs of the scheme,” Briggs said.