The Stockbrokers and Investment Advisers Association (SIAA) hosted the Compensation Scheme of Last Resort (CSLR) CEO David Berry last week for a learning session about the scheme. OCG attended and wanted to share with our network some key takeaways and relevant updates as of 1 July 2024.

Key Takeaways

CSLR paid its first complaints in June 2024 after commencing operation on 2 April 2024. (Compensation Scheme of Last Resort makes first payments to people who suffered financial services misconduct | CSLR)
CSLR exists to help pay victims of financial misconduct who would otherwise have struggled to receive any compensation up to $150,000 from an AFCA complaint determination through no fault of their own when the financial firm becomes insolvent or refuses to pay.
CSLR fills a large gap in the financial system where AFCA would not action a complaint against a financial firm in administration as the individual would see no benefit from the complaint.
CSLR estimates levies set out in the legislation to pay customers and operate CSLR which ASIC collects. Excess levies are rolled to future periods.
As of July 1, 2024 - Initial 2nd Levy Period - minimum levies (Compensation Scheme of Last Resort | ASIC) are estimated at:

$100 + $1,186.14 per financial adviser
$100 + $14.92 per $1m of annual transactional turnover for securities dealers
$100 + $33.85 per credit representative
$100 + $1.95 per $1m of credit provided above $100m
Or $24.1m as estimated by CSLR / finity (Report (cslr.org.au)) expected to be due issued by ASIC in early August and due 30 business days later in September / October 2024 covering ~130 claims.

What is CSLR

CSLR helps consumers to feel more confident in using licensed financial services by providing assistance if they become victims of financial misconduct. CSLR is an independent, not-for-profit organisation authorised by the Australian Government to perform their duties.

The CSLR can only review a claim after the complaint has been considered by the Australian Financial Complaints Authority (AFCA) with a determination requiring an amount to be paid by a Relevant Entity to a complainant. The scheme requires that the customer notify AFCA that the determination is unpaid (typically within 12 months) and the complainant will not be fully compensated by any other statutory compensation scheme or other source such as a liquidation.

The Scheme provides for the following payments.

1. compensation payments up to $150,000 per complainant

2. unpaid AFCA fees.

3. CSLR Operating costs.

4. ASIC costs for administering the Scheme Levies.

The compensation payments by CSLR must come from one of the following financial products or services with sub-sectors – personal financial advice, credit intermediation, credit provision and securities dealing.

The scheme does not cover certain financial products, including;

Managed investment schemes
Foreign exchange or derivatives trading
Insurance arranged through a broker
Insurance
Scams.

Timeline of the CSLR establishment

2017 Ramsay Review recommended the establishment of CSLR.
2019 Hayne Royal Commission supported the need for CSLR.
September 2022 Government legislation introduced consultation on the schemes design with industry and consumer groups.
22 June 2023 Australian Parliament legislation passed with bipartisan support requiring CSLR to commence by the start of April 2024.
2 April 2024 CSLR established

Concluding Thoughts

It was a pleasure hearing from David Berry about the work the CSLR will be doing over the coming years helping customers as a ‘last resort’. Future levies will continue to hit credit providers, securities dealers, credit intermediaries and licensees providing advice to retail clients on relevant financial products requiring small provisions to be raised. These levies will help give consumers more trust in the system and correct the ill deeds of previous bad actors within the industry.

CSLR’s recent commencement highlights the industry-wide responsibility in upholding integrity in the financial services industry, by reporting misconduct and adhering to ASIC regulation. OCG can support financial services businesses to review and refine their policies, operations and compliance measures in line with industry standards and the protection of consumers.

About the Stockbrokers and Investment Advisors Association

The Stockbrokers and Investment Advisors Association is the professional body for the stockbroking and investment advice industry in Australia, representing 8,000 professionals. This webinar, Compensation Scheme of Last Resort, was held on Wednesday, 26th June 2024. The presentation PowerPoint is available here.

About OCG

Oceanic Consulting Group is a leading strategic advisory firm whose experienced team and multidisciplinary skill sets can guide and support financial services clients to better their business. Our services include speciality in Strategy, Risk Advisory, Markets and Resilience.

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