No CSLR levy for MISs and SMSFs – but a waterfall

Mike Taylor

Managing Editor and Publisher

9 April 2026

The Government has no intention of making Managed Investments Schemes (MISs) contribute to the funding of the Compensation Scheme of Last Resort (CSLR) but it may make them share the load in funding special levies via a proposed “waterfall framework”.

The proposed “waterfall framework” would pick up not only MISs but also self-managed superannuation funds (SMSFs), in circumstances where, as of 28 February, cases involving SMSF complainants accounted for around 93.1% of all paid and pending CSLR cases representing $154.134 million.

While a significant number of stakeholders, particularly financial advisers, have argued for the inclusion of MISs in the CSLR funding framework, the Treasury consultation paper declares up-front “Government is not considering bringing MISs into scope of the CSLR annual levy (via inclusion as an in-scope product or service), but instead how to best apply a special levy to the MIS sector, where a special levy is enlivened”.

“A key policy question is therefore how a special levy on the MIS sector should be designed in a way that is equitable, transparent and administratively efficient,” it said.

The consultation paper said that if the Government were to introduce a special levy waterfall framework, “the MIS sector would like by one of the sub-sectors ‘connected’ to underlying losses”.

“In these cases, the MIS sector would be required to pay a special levy reflecting their proportionate connection to losses, up to the special levy cap,” it said.

The consultation paper also canvasses including self-managed superannuation funds (SMSFs) in the CSLR funding arrangements, noting that they can currently access CSLR compensation where financial advice is provided but do not actually contribute to the costs of the scheme.

The consultation paper proposes including SMSFs in the ‘waterfall framework’ but giving them the option to opt-out of the levy which would then deny them access to CSLR compensation, irrespective of access to the Australian Financial Complaints Authority (AFCA).

The consultation paper also proposes an alternative ‘opt-in’ approach under which SMSFs can elect to contribute to a special levy and be eligible for CSLR compensation.

Treasury’s proposed ‘waterfall framework’ would see any CSLR funding shortfall allocated sequentially across up to three tiers of the financial services catchment, reflecting the relative connection of sub-sectors to the underlying losses.

It said the design parameters would be as follows:

Three-tier levy waterfall

• Tier 1: The primary sub-sector (first payer) – the sub-sector whose annual levy cap has been exceeded;
• Tier 2: The connected sub-sector/s (second payer/s) – the sub-sector/s whose products and/or services are identified as being connected to the losses; and
• Tier 3: The retail facing sub-sectors (final payers, if necessary) – the remaining sub-sectors that operate as a defined backstop if any shortfall remains.