Time to comprehensively start over on CSLR

Mike Taylor

Managing Editor and Publisher

3 July 2026

ANALYSIS

There are no band-aid solutions for fixing the funding arrangements for the Compensation Scheme of Last Resort (CSLR). Treasury would be well-advised to simply start over.

The Assistant Treasurer and Minister for Financial Services, Daniel Mulino has utilised the stop gap of a special levy while he and Treasury mull answers for what has become a legislative and bureaucratic dog’s breakfast. He must now act.

Just how complex the existing situation has become was exemplified by the actuarial report underpinning the CSLR’s decision to increase the levy estimate for Financial Year 2027 by $60.7 million to $190.3 million.

Seeking to explain the factors going to the $60.7 million increase, the actuarial firm, Finity pointed to the vagaries around the capacity of the Australian Financial Complaints Authority (AFCA) to handle Shield and First Guardian complaints and the complications created by the compensatory payments made by Macquarie Investment Management and Netwealth Investments.

Under the heading of “Ultimate cost indications” the actuarial report said as follows:

“11,800 investments are estimated to be affected by the Shield and First Guardian collapses. To date, notwithstanding the highly publicised nature of the failures, AFCA has only received around 3,100 complaints that have indicated they involved Shield and/or First Guardian (including complaints against superannuation trustees and the Responsible Entities for Shield and First Guardian

“Court filings indicate that Interprac advise, through its Authorised Representatives, 6,800 investors to invest in Shield and First Guardian. Around 1,200 out of the 3,100 complaints relate to Interprac. As Interprac is not an insolvent firm, no allowance is included in our Revised Estimate for Interpac related complaints. Furthermore, AFCA has paused making Determinations on Interprac related complaints pending the outcome of Court action currently in progress.

“The range of ultimate CSLR claims compensable by the Scheme will be affected by the following:

• As the largest Financial Firm implicated in the Shield and First Guardian failures, the CSLR-eligibility status of Interprac will materially affect the ultimate claim costs.
• Notwithstanding Interprac, the number of complaints against CSLR-eligible Financial Firms that are lodged with AFCA. There is a large discrepancy between the estimated number of affected investors and complaints received so far.
• Other compensation sources to investors prior to a claim reaching CSLR. We do not speculate on what these compensation sources might be but observe that the past example of compensation provided by MIML/Netwealth materially reduced claims costs that might otherwise have been paid by CSLR.

“The potential cost of existing AFCA complaints that are currently CSLR-eligible is estimated to be in the order of $50m (i.e complaints against a firm in an eligible sub-sector and that firm has failed. Including lodged claims against Interprac, the potential cost increases to $150 million.

“The estimated cost from the 3,100 complaints lodged to date is estimated at $200m (though this includes complaints against firms that aren’t in CSLR eligible sub-sectors.”

“More broadly, we estimate that if every affected investor ultimately were to be CSLR-eligible, and were to be compensated, then the total First Guardian/Shield claims payable by CSLR could be in the order of $900 million. If half of the affected investors were to lodge a complaint (i.e. around 6,000 complaints, or double what has already been lodged), the cost would be in the order of $450 million.

“The mix of complaints that AFCA receives and the potential application of counterfactual investment returns will affected the cost of the CSLR. Nevertheless, we consider these factors to have largely second order impacts relative to the items listed above.”