Is Mulino up to fixing CSLR?

OPINION

The Assistant Treasurer and Minister for Financial Services, Daniel Mulino, has been left in no doubt about what the financial advice/accounting stakeholders believe the Government should do with respect to the Compensation Scheme of Last Resort (CSLR) exceeding the $20 million sub-sector cap.

There is unanimity that the load of the excess $47 million should be spread as broadly as possible across all the sub-sectors and that, more importantly, the Government should simply accept that the funding mechanism needs to be redesigned to ensure no repeat of the current problem.

Of course, anyone connected to the financial advice could have come to the same conclusion months ago as the remediation dimensions of the Dixon Advisory collapse became evident and as the impact of the Shield Master Trust and First Guardian collapses began to play through.

However, while the answers have been easy to identify they are difficult for Mulino to address because they require the Treasury unravelling some of the key underpinnings of the CSLR and grappling with interlinked issues such as the role of Professional Indemnity insurance and the ‘but for’ compensation approach adopted by the Australian Financial Complaints Authority (AFCA).

In short, a proper fix requires objectively looking at the complex underpinnings and accepting that the arguments against including managed investment schemes (MISs) in the funding arrangements need to be closely scrutinised and tested.

Anyone who has lived and worked in Canberra knows that only an exceptionally brave and empowered minister would attempt the type of enduring fix that the CSLR regime requires. Mulino, for all his experience, is a junior minister sitting outside the Cabinet room.

With that said, a start to fixing the regime would be the Commonwealth meeting its responsibilities by fulfilling the promises which were made on the initial funding of the CSLR and also the liabilities driven by the Dixon Advisory collapse which actually pre-dated the passage of the CSLR legislation through the Parliament.

Political pragmatists know that the Government is not going to abandon the CSLR but it can and should address those things which make its funding mechanism unfair and unsustainable and which create substantial moral hazard.

A big ask for a relatively new and junior minister.