In their response to the CSLR: Exceeding sub-sector levy cap consultation paper, Chartered Accountants Australia and New Zealand (CA ANZ), CPA Australia, and the Institute of Public Accountants warned that the ongoing blowout of the levy cap is harming the finances of advisers within their organisations.
“The growing number of high-profile cases of financial services misconduct resulting in claims against the CSLR are placing considerable strain on the ongoing funding of the scheme,” the three organisations said.
The joint bodies said they do not support imposing a special levy on a single subsector, warning it would “unfairly penalise” compliant businesses and that, without broader CSLR reform, the minister may need to continue exercising discretionary powers in future years regardless of the immediate funding solution.
“The additional funding burden is disproportionally falling on the financial advice sector, in turn impacting on the financial viability of many financial advisers,” the bodies said.
“At present, the primary sector identified as being liable for compensation losses is the financial advice sector,” the response reads, “when clearly other parties, including the government via ASIC supervision, are involved.”
As a solution, the bodies recommended that the special levy be applied broadly across multiple retail-facing subsectors, while also calling for government participation in funding the CSLR.
“A ‘special levy for several subsectors’ provides for equity amongst industry participants and timely compensation to eligible claimants,” the bodies said. “We agree that this approach recognises the ‘benefits of the scheme to the industry more broadly’. This option also ensures that further costs are not imposed on the financial advice profession.”
On their push for wider government participation, the bodies said: “The government should also participate in funding the CSLR claims where the scheme exceeds the subsector caps. This will support sustainability and repeatability of the scheme.”
According to the bodies, regulators and government should bear 50 per cent of the CSLR costs, noting they are the only participants with the power to “tighten the guardrails” and prevent such failures from recurring.
The bodies also recommended reviewing Chapters 7 and section 912A of the Corporations Act to simplify compliance, ensure professional indemnity cover is adequate, and introduce minimum run-off cover to protect consumers if advisers or licensees cease operating.
As it stands, many small, compliant financial advice practices are having to pay for the misconduct of larger firms. The levies they are required to pay, on top of general operational costs, means that the financial sustainability of many firms is under threat, placing more pressure on an already stressed industry.
“The funding challenge is amplified by the fact that there are fewer financial advisers and the framework punishes those who have done the right thing and are still operating as financial advisers,” the accounting bodies added.
The joint bodies also highlighted that new entrants too are being punished for the misconduct carried out before they had joined the profession, making advice a less desirable career for new graduates.
“It is imperative that the scheme is true to label, that it is truly operating as a ‘last resort’ and that action is taken to address the reason for the continued rise in compensation claims,” the joint submission said.
“The framework must be redesigned as a matter of urgency so that every other option to support the funding of the compensation has been exhausted in the first instance.”
Canberra, is anyone listening ?
Jim, do those ears work ?