Timing now adds to CSLR cost equation

ANALYSIS

Less than six months after releasing its initial levy estimate of $77.9 million exceeding the sub-sector cap for personal financial advice, the Compensation Scheme of Last Resort (CSLR) has now reported a current financial year underspend.

This is important because the underspend announcement from the CSLR has implications for two key inquiries being conducted into the funding of the compensation scheme – one undertaken by Treasury and the other still on the books of the Senate Economics References Committee.

The Senate Committee inquiry kicked off as a result of a reference from the Senate in September, last year, and was due to report by the last sitting day of March this year but will now report to the Senate on 28 July.

The Treasury post-implementation review of the CSLR kicked off with a consultation on 31 January with submissions closing on 28 February and is yet to report.

However, the bottom line of both reviews is the cost of the CSLR and the adequacy of the funding formula.

The Senate Committee inquiry and the Treasury post-implementation review report will create significant work for the new Assistant Treasurer and Minister for Financial Services, Daniel Mulino because January’s estimate raised the possibility of a special levy.

Significant implications flow from yesterday’s announcement by the CSLR that it has underspent in the current financial year because it indicates that while there are substantial claims that will come before the compensation scheme, the volume at which they arrive is slower than originally anticipated.

The CSLR put it simply yesterday, when it said the “claim volume originally estimated in December 2023 is expected to eventuate, however, claims have taken longer than anticipated to reach the CSLR and will be received in FY26”.

Given that the CSLR estimated in January a levy of $77.9 million – well above the $20 million sub-sector cap for personal advice – claims timing is now a factor and give rise to the likelihood that the scheme will still be processing those generated by the collapse of Dixon Advisory up to five years after the event.

Given the Senate inquiry and the Treasury post-implementation review, the CSLR has been necessarily high transparent with its chief executive, David Berry, reinforcing that the number of claims has not diminished, they have simply taken longer to arrive.

He said the CSLR has seen multiple large-scale firm failures within the personal financial advice sector, with at least two of these failures potentially leading to more than 800 claims.

“These failures continue to significantly impact the amount of compensation likely to be paid in the coming financial years. The key driver to the timing of payments remains the speed at which the CSLR receives claims.”

“The projected underspend will be utilised to pay compensation in subsequent financial years and be offset against the FY27 levy estimate,” Berry said.

In line with a lower number of claims paid, the CSLR operating costs are tracking below the levy estimate.

The CSLR continues to focus on ensuring eligible victims of financial misconduct are supported in line with its legislative mandate.