Call to dump ‘regulatory effort’ from CSLR cost base

Mike Taylor

Managing Editor and Publisher

12 June 2026

Major industry funds group, Super Members Council (SMC) is contesting the appropriateness of allowing “regulatory effort” to be a part of the cost calculation for the Compensation Scheme of Last Resort (CSLR).

The SMC is arguing for a more appropriate and sustainable methodology for funding the CSLR and the avoidance of reliance on secondary proxies within the current regime, “most importantly – ‘regulatory effort’”.

The industry superannuation funds body asserts that “regulatory effort is not a measure of risk”

“It is a measure of how much supervisory and enforcement time a regulator has spent on a sector in a given period, which reflects a wide range of factors that have little or no relationship to the conduct that triggers CSLR payments,” it said.

“These factors include the size and complexity of the regulated population, the maturity of the regulatory regime, the policy priorities of the regulator in the relevant year, the volume of routine licensing and reporting activity, the availability of supervisory resources, and the visibility of misconduct (which is itself a function of regulator focus, not of underlying risk),” the SMC has told Treasury.

“A sector that is heavily supervised because it is large, complex, or well-organised will register high regulatory effort regardless of whether it produces CSLR-relevant losses. A sector that is lightly supervised because it sits at the edge of the regulatory perimeter — precisely where the Shield and First Guardian conduct emerged — will register low regulatory effort even where it is the source of the harm.”

“Using regulatory effort as a proxy for risk inverts the relationship the scheme is supposed to reflect,” the SMC said.

It said the same critique applies to broader “connection” concepts, which “allocate cost on the basis of perceived adjacency to the harmful conduct rather than actual contribution to it”.

“Adjacency is not a substitute of loss caution,” it said. “A scheme that allocates cost on the basis of where regulators have spent time, or on the basis of which sectors are nominally adjacent to harm, will systematically misallocate cost away from the actors who generated the events and toward actors who happen to be visible to regulators or commercially proximate to the conduct”.

The SMC is advocating that Treasury adopt a “loss-proximate model” which allocates funding up front, “based on where the events that trigger the scheme demonstrably sit”.

“The result is more stable and predictable funding for compliant operators, a clearer link between conduct, governance quality and financial consequence, and a scheme that operates on principled groups rather than on whichever sector is closest to hand when costs need to be redistributed,” it said.