Banks, insurers – one CSLR levy payment was enough

With the 10 largest banking and insurance groups having paid an upfront levy of around $241 million to fund the Compensation Scheme of Last Resort (CSLR), the Australian Banking Association (ABA) is making clear its members do not want to be subject to a second levy hit.

Both the ABA and the Insurance Council of Australia (ICA) have specifically urged against the Assistant Treasurer and Minister for Financial Services, Stephen Jones, using his ministerial discretion on levy shortfalls in a way which would further impact their members.

In submissions filed with the Senate Economics References Committee inquiry into Wealth Management Companies, the two organisations have pointed to the rising costs associated with the CSLR, particularly around the collapse of Dixon Advisory, and warned against the minister setting a precedent via “cross-subsidies”.

The ABA said it looked forward to the Senate committee “doing its work to fully inquire and report on whether the CSLR has been utilised in a ‘last resort’ nature to date, or whether further options could have been pursued before the scheme was utilised in regard to Dixon Advisory cases”.

The ABA submission pointed to the ability of the minister to impose a special levy noting that “we have previously highlighted that the CSLR scheme allows losses instigated by a single sub-sector’s oversight to be allocated among uninvolved sub-sectors”.

“Any application of Ministerial Discretion must not exacerbate further cross subsidisation by creating a precedent which does not encourage sub-sectors who have created losses (paid for by other sub-sectors) to uplift their own standards and reduce/prevent future harm to Australian consumers,” ABA submission said.

The Insurance Council also noted the top ten financial institutions by income having paid an upfront levy of approximately $241 million and said it opposed further expansion of the CSLR.

“The Insurance Council opposes further expansion of the CSLR and believes the ongoing sustainability of the scheme would be enhanced through other frameworks that help to mitigate against the collapse of wealth management companies. It is crucial that any underlying issues within sectors are addressed first, as opposed to a focus on the remediation process, to help avoid significant stress and anxiety for consumers,” it said.

In similar terms to the ABA, the Insurance Council said “any application of the ministerial discretion must not inadvertently discourage the sub-sectors that have created the losses to uplift their standards and prevent future consumer harm”.