Financial adviser pleas on CSLR funding fall on deaf ears

Mike Taylor

Managing Editor and Publisher

27 October 2022

ANALYSIS

Financial advisers will be funding much of the cost of the Compensation Scheme of Last Resort (CSLR) because, In the end, the three-year-old report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry continues to prevail.

The Royal Commission recommended the establishment of a CSLR and politicians have demonstrated again that they are not going to be in the business of failing to implement one of its recommendations.

What will be disappointing for financial advisers is that Australian Labor Party (ALP) politicians, when in opposition, were advocating for the inclusion of MISs in the funding arrangements but dropped that position once they gained Government – as demonstrated by the Senate Economics Committee report albeit that the Assistant Treasurer and Minister for Financial Services, Stephen Jones, has signalled the Government may look at it down the track.

At the end of the day, the scope of the CSLR does not marry up to the range of matters covered by the Australian Financial Complaints Authority, which includes MISs and financial advisers will pay the price.

The Senate Economics Legislation Committee has recommended that the CSLR legislation pass the Parliament without amendment, despite the fact that it continues to place the weight of funding on financial advisers rather than product manufacturers, particularly managed investment schemes.

Just how much financial advisers will need to ante up to fund the CSLR remains to be announced, but it will be in addition to the cost of the ASIC levy which in turn will be influenced by the Single Disciplinary Body which sits under the ASIC umbrella.

The Senate Committee noted that the CSLR framework creates a levy against relevant financial services industry entities to fund the scheme, to an overall scheme levy cap of $250 million.

The committee also noted that some stakeholders (read financial planning organisations) raised concerns about the levy and its impact on the industry, but then promptly moved on to state that “this view was not shared by all stakeholders, with many submitters articulating their support for a forward-looking, industry-funded CSLR.

“Treasury argued that it was appropriate for the one-off levy to be funded by the top 10 firms, given their capacity to pay,” the committee report said.

Despite a concerted effort on the part of the major financial planning groups to have product providers included in the funding of the CSLR, the committee ultimately decided to accept the word of Treasury.

“The committee recognises the concerns raised by stakeholders within the financial services sector regarding the proposed CSLR. While the committee acknowledges these concerns, it is reassured that Treasury has engaged in an extensive consultation and design process with industry, and that this process has produced a rational framework that addresses those concerns. The committee is persuaded by the evidence from Treasury and other submitters in the financial services sector who articulated their support for a forward-looking industry funded CSLR,” it said.