It has been eight months since then-financial services minister Stephen Jones announced that Treasury would conduct a post-implementation review of the Compensation Scheme of Last Resort (CSLR).
The announcement came at the same time as the initial estimate for the FY2025–26 levy, which was a tick over $70 million for financial advisers.
Since then, not only have there been numerous submissions to this review made public, the estimate was revised down slightly to $67.3 million, Treasury has launched yet another CSLR consultation – this time specifically on what new Financial Services Minister Daniel Mulino could choose to do with the special levy – and the scale of the impact of the Shield and First Guardian failures has become clearer.
However, there has still been no sign of Treasury’s report.
What we do have is the submission from the CSLR operator, which outlines a range of recommendations that are “informed by practical experience and strategic insight”, with the goal of ensuring the long-term sustainability of the scheme.
“The CSLR looks forward to the outcome of the PIR and remains committed to working collaboratively with government and industry stakeholders,” said the scheme’s chief executive, David Berry.
“Our shared goal is to ensure the scheme continues to meet its legislative obligations, as we balance the impact of levies on industry while serving as a vital support for consumers impacted by financial misconduct.”
One of the ways the CSLR operator believes it can do this is through broader subrogation rights.
“Subrogation can be described as the substitution of one party for another party in respect of the second party’s rights or claims. The purpose of subrogation, or one party stepping into another’s place in a legal or financial obligation, is to ensure that the obligation or debt is ultimately paid by the party who should, by all that is fair, pay it,” the submission said.
It added that, based on its current experience, its current subrogation rights are limited because a “Chapter 5 body corporate may not ‘recognise’ the CSLR’s subrogation right” and it isn’t empowered to make claims against a financial firm’s insurer.
In line with this, the CSLR recommended that its subrogation rights be expanded to the point that it “fully stands in the shoes of the complainant”, including the ability to pursue a financial firm’s insurer or a “recalcitrant AFCA member”.
“The proposed amendment would be to adopt a broader subrogation right which provides that, if compensation in respect of a claim is paid by the CSLR, the scheme is then subrogated, to the extent of that payment, to all the claimant’s rights and remedies concerning the loss to which the claim relates (even if those rights are not against a Chapter 5 body corporate or are not recognised by an officer of a chapter 5 body corporate),” the submission said.
Looking to the UK, the CSLR said its Financial Services Compensation Scheme has a “significantly broader subrogation right”, adding that even within Australia, the Securities Exchange Guarantee Corporation has a broader subrogation right than the CSLR does currently.
As things currently stand, the submission added, there “does not seem to be material funds available in the administration/liquidation process that would result in material returns to the CSLR as an unsecured creditor”.
The submission also pushed for a range of other changes to the scheme, ranging from only compensating for capital losses to remove the contentious ‘but for’ claims and changing the caps on compensation for “major” or “massive” financial firm failures through to changing the way other payments reduce the compensation cap.
Earlier this month, Berry explained a number of these recommendations on the ifa podcast.
Imagine Canberra Govt actually holding the failed and frauded MIS responsible for their failures.
Imagine ASIC even doing some of its job and acting on Adviser tips offs to stop much earlier Dodgy Dixons.
Adviser can only dream.
About time the Government look to treat the CSLR as the last resort, not the first resort.