Today’s announcement of a huge claims blow out in the Compensation Scheme of Last Resort shows the scheme is unsustainable and risks impacting the entire financial services industry more broadly.
Commenting on the announcement that the government is directing the Treasury to undertake a comprehensive review of the Compensation Scheme of Last Resort to ensure victims of financial misconduct have a sustainable avenue for redress, Stockbrokers and Investment Advisers Association (SIAA) CEO Judith Fox stated that major changes need to be made to the CSLR and urgent action is required to deal with the levy blow out.
“We agree with the Minister that this huge cost blow out proves that the scheme is unsustainable. The annual levy cap for the financial advice sector is $20 million. Today’s report released by the scheme shows that the proposed levy for the sector will total $70 million. For the cap to be exceeded by such a large amount means that the current scheme is not working as intended and change is urgently needed,” Ms Fox said.
“We support a scheme that compensates genuine victims of wrongdoing but the way the scheme has been designed is unsustainable and requires a re-think. We understand that people who have not in fact suffered any capital loss are receiving compensation under the scheme at a cost that the industry can no longer bear”, she added.
The Compensation Scheme of Last Resort which was set up in April 2024 can pay up to $150,000 in compensation to eligible consumers who have received an AFCA determination awarding compensation that remains unpaid in relation to complaints in one of four areas: personal financial advice, credit intermediation, securities dealing or credit provision.
“While we strongly support a Treasury review of the scheme, it has to be done on an urgent basis. This levy will impact the financial sustainability and viability of advice providers and has the potential to impact the financial system more broadly,’’ Ms Fox stated.
‘’Changes need to be made to the way the scheme is designed sooner rather than later to put it back on a sensible and sustainable footing’’, she added.