Govt should contribute to CSLR special levy

The legislating of the ability to raise a Compensation Scheme of Last Resort (CSLR) special levy was intended to cover a single black swan event, not a flock of black swans, according to the SMSF Association.

And, on that basis, the SMSF Association believes the Commonwealth should now fund at least a part of any special levy the Assistant Treasurer and Minister for Financial Services, Daniel Mulino, chooses to impose.

The SMSF Association has made its position clear in a submission filed with the current Treasury consultation around the sub-sector cap, with SMSF Association chief executive, Peter Burgess stating the most efficient and equitable way to fund a special levy is to spread the load across all sub-sectors.

He said that while the estimated $47 million shortfall for 2025-26 is attributed to the financial advice sub-sector, AFS licensees who are AFCA members are not responsible for “this significant and concerning shortfall in potential unpaid compensation claims”.

“There is no element of the current CSLR’s industry funding model that is predicated on direct industry culpability for instances or classes of misconduct.

“In these circumstances, we believe the most effective way to quickly compensate eligible claimants is to spread the cost of the special levy across all sub-sectors.

Burgess said taken at face value it may seem inequitable for a sub-sector to fund unpaid claims for another sub-sector.

“But the reality is that the current CSLR model is not equitable – each sub-sector is mandated to fund compensation for the misconduct and deliberate negligence of their peers over which they have no control nor influence.”

He said the Federal Government should also share part of the responsibility.

“The Government is the only stakeholder that has the power to enact and affect the regulatory settings that participants must operate within. Given this, we believe the Government should also be responsible for funding part of the special levy.

“While the need for a special levy was considered in the design of the CLSR as a key funding mechanism for a ‘black swan’ event’ following a large failure, it was not designed to fund the flock of black swans that we have experienced and appear to continue to experience in recent times.”

Burgess said the Association strongly supported the CSLR’s objective of giving consumers access to financial compensation where they suffered a financial loss from poor or negligent financial advice.

“Consumers should have trust and confidence that awarded compensation claims will be paid, and in a timely manner, making it imperative that the right mechanism is chosen the meet the funding shortfall.”