While the broader financial services system grapples with the increasing costs of the Compensation Scheme of Last Resort – as well as the way Financial Services Minister Daniel Mulino decided to spread the first special levy – Treasury will undertake another review of settings that are contributing to the costs.
On Friday, Treasury announced that Mulino had tasked the department with consulting on ways to improve PI insurance in relation to compensation claims.
“The Compensation Scheme of Last Resort (CSLR) was established as an important safeguard to ensure that consumers who have suffered loss through misconduct have access to redress when all other avenues have failed,” the consultation paper said.
“Since it commenced in April 2024, the CSLR has supported ongoing confidence in the financial system’s dispute resolution framework by facilitating the payment of up to $150,000 in compensation to eligible consumers who have received a relevant determination for compensation from the Australian Financial Complaints Authority (AFCA) that remains unpaid.”
Former minister Stephen Jones first announced the post-implementation review of the scheme on 31 January this year, however the results are not expected to be seen until early 2026, according to Minister Mulino.
The more holistic revie has been delayed as Treasury dealt with the more pressing issue of the $47.3 million special levy for the 2025-26 financial year.
This latest consultation paper is open to submissions until 13 February, with it explaining that the government is seeking a “more robust ‘first line of defence’ to fund consumer compensation” to ensure the sustainability of the CSLR.
“However, consideration of proposals to enhance the effectiveness of PII in responding to claims for compensation must also be viewed in the broader context of the supply, quality, and pricing of PII insurance and any related regulatory or business costs for licensees,” the paper said.
“This paper will inform development of reform options to support the ongoing sustainability of the CSLR. Further consultation will also occur early in 2026 through an options paper on broader reforms and technical changes to the CSLR itself to ensure it remains sustainable.”
The minister had previously told industry stakeholders that the paper was on its way at the CSLR roundtable on Wednesday last week.
Speaking on a Financial Advice Association Australia (FAAA) webinar on Thursday, chief executive Sarah Abood said there were three consultations expected.
“The first one we’re expecting to get by the end of this week, and that will be into professional indemnity and the role that PI plays in these collapses, and how it interacts with the CSLR,” Abood said.
“We certainly welcome that. I think it’s a good question to ask. I think there are obviously challenges. We can’t rely on PI to resolve these matters, partly because it doesn’t pay, obviously, in cases of fraud.
“But also because often when a firm becomes insolvent that bill stops being paid, so there might not be PI in place at the right time, but we have an opportunity to make that case and to talk about the role of PI. We’ll certainly be getting on to that as soon as we can.”
Oh great. Let’s transfer the risk back to the honest adviser in a different form.
Make it mandatory and cost a bomb.
How about ASIC just do their job in the first place?
Perhaps the ALP might review them for a change.
The government is a friend and they will fix PI by making insurers pay out more whilst reducing premiums all at the same time. Sounds like they are dreaming!
PI insurers forced to pay more claims = PI premiums increase = ADVISER PAY YET AGAIN.
Hears some thoughts Govt:
– Don’t back date Dixon’s CSLR status to save your own losses.
– Govt pay 1st year of CSLR like promised.
– ASIC actually listen and act when warned about dodgy MIS and advice scams.
– MIS to be regulated properly.
– MIS to pay for their failures via CSLR levies.