CSLR board releases initial levy estimate

The CSLR board has estimated that the initial levy to fund claims from eligible consumers who have been the victims of financial misconduct will total $241 million.

This figure will meet the compensation claims and costs in relation to complaints that were lodged with the Australian Financial Complaints Authority (AFCA) between 1 November 2018 and 7 September 2022, and falls within the annual cap of $250 million as set out in the legislation for the CSLR.

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The initial levy estimate includes provision for the majority of claims involving Dixon Advisory and Superannuation Services (DASS). DASS went into administration in January 2022, with a large number of complaints subsequently lodged with AFCA.

In order to calculate the estimate, CSLR engaged actuarial consultancy Finity Consulting, with a second actuarial consultant, Taylor Fry, engaged to review the Finity analysis.

“We are pleased to announce this important milestone as an important step towards the CSLR being able to pay the compensation claims it will start receiving from April 2024,” the CSLR board said in a statement.

“This has been a significant undertaking, as this levy is the first of its kind. It was important that we had a robust and rigorous process to be able to make a best estimate based on the best information available.”

Under the legislative framework for the CSLR, which was passed in June 2023, Parliament has the opportunity to object to this estimate through a disallowance process. Once 15 parliamentary sitting days has elapsed, the Australian Securities and Investments Commission (ASIC) will determine the levy for the relevant financial firms and collect the levy on behalf of the federal government.

The 10 largest banking and insurance groups in Australia will foot the bill for this first establishing levy.

The funding will pay for compensation claims of up to $150,000 to eligible consumers who have been the victims of financial misconduct relating to personal financial advice, credit intermediation, securities dealing or credit provision.

The complaint must also fall within the rules of AFCA and the consumer must have received a determination in their favour that awards compensation.

If the financial firm is insolvent and unable to pay the compensation awarded, and all reasonable steps have been taken to seek payment, the consumer can lodge a claim with the CSLR.

In November, in response to the potential increase in levies charged to advisers as a result of the CSLR, the chief executive of the Financial Advice Association Australia (FAAA), Sarah Abood, said that while the body doesn’t oppose the scheme, it is concerned about past costs and the history of misdeeds in the sector, including those inflicted by Dixon Advisory.

“What is the CSLR going to do with a large number of complaints, for example, from Dixon? We are looking into who is going to pay for those,” Ms Abood said.

In June, Financial Services Minister Stephen Jones called the establishment of the CSLR a “significant victory for over 2,000 people who have been waiting for a resolution on their cases”.

“To ensure the CSLR can commence as soon as possible, the government will fund the costs to establish the body that will operate the CSLR, including funding the costs of the first levy period through to the end of the 2023–24 financial year. The scheme will then be funded by industry for future years,” the minister said.

While the government will cover the establishment costs for the CSLR and the expenses of the initial levy period until the end of the 2023–24 financial year, subsequent funding will rely on levies imposed on specific segments of the financial services industry.