What are the possible outcomes for the CSLR special levy?

On Friday afternoon, Financial Services Minister Daniel Mulino announced that he has asked Treasury to consult on the statutory options available to deal with the Compensation Scheme of Last Resort (CSLR) 2025–26 revised claims, fees and costs estimate.

At the start of July, the CSLR operator released the FY25–26 revised levy estimate, which lowered the amount attributable to the financial advice subsector to $67.3 million.

Along with the announcement, the CSLR notified Mulino of the need for a special levy of $47.29 million.

There had been no word over the last month on how the minister would handle the excess cost, with the consultation now set to inform the decision-making process.

At a high level, the options include spreading the compensation payable by the CSLR over a longer period of time, applying a special levy to the subsector that has exceeded the cap, or applying a special levy across additional subsectors.

Importantly, as the consultation paper noted, the minister’s “power to exercise these options is discretionary” and there are no requirements for a particular action and, indeed, no time frame for the minister to make the decision.

The options available to Mulino are also not mutually exclusive and he can choose to make a determination that “both imposes a special levy and spreads compensation out over a longer period and may choose to make a determination that imposes a special levy that does not recover the full amount of the excess”.

An option that the minister does not have available under the legislative framework, however, is for the government to make a “financial contribution” to deal with the excess costs.

While the decision on the levy is, as noted earlier, at the minister’s discretion, he does need to be satisfied that a sub-sector cap has been exceeded and that it is the “most effective way of enabling those claims to be paid in a timely manner”.

That first caveat has clearly been met, however there is little clarity withing the legislation on exactly how the minister is to determine what the most effective option is.

He is also required to take the impact the special levy may have on a sub-sector’s “financial sustainability and viability” into account, as well as the on the financial system more broadly.

This is sure to be an area that advice associations point to as a reason not to impose the levy on advisers.

Do nothing

The first option that Minister Mulino could take is, interestingly, not doing anything.

Under the legislation, there is no prescription that the minister needs to do anything at all.

In this scenario, the CSLR operator would simply not be able to make any payments once its reserves are depleted.

Much like the lack of a legislative deadline for a ministerial decision, there’s also no specific timeframe that the CSLR must make a payment, however the consultation paper explains that its “obligation to make a payment does not fall away merely because it does not have the funds to do so in a particular financial year”.

The claims would sit unpaid until the next levy period, creating a financial burden on the victims that are entitled to compensation, while also kicking the can down the road so that payment will eventually be made by advisers in subsequent years.

Given the size of the outstanding bill and even larger bills to come, there is little to indicate this would be the preferred option.

A similar but slightly more proactive option is to delay compensation payments into future financial years, which could include paying claims in instalments.

Much like the first route, this would push the burden for the shortfall onto claimants and future levy payers.

“If there are limited or uncertain prospects that in future years the scheme will be able to complete payment of the current year’s delayed payments and make good on future claims, this option would not appear to be sustainable,” the consultation paper said.

It could, however, be viable in conjunction with a special levy, where only part of the payment is delayed. The likelihood of an excess in future financial years, however, raises the same hurdles of an ever-increasing backlog of payments to be made.

Advisers pay everything

While certainly not an option that the advice profession wants the minister to exercise, he does have the ability to levy the entire $47.29 million against the primary subsector alone.

Based on the 15,233 advisers registered with ASIC on the census date, this would equate to around $3,100 per adviser.

“This option reflects the same principle that underlies the annual levy: that the sub-sector to which the conduct that led to the claims relates pays the cost, even though the entities that pay the levy did not themselves engage in misconduct,” the paper said.

It added: “Applying a special levy just to the primary sub-sector need not imply any collective responsibility of the sub-sector for the relevant misconduct.”

A point in its favour, according to Treasury, is that it is “less administratively complex”.

However, the paper did note that the impact of the levy on the financial advice sector needs to be considered.

“While the sub-sector may be able to bear the costs as a once-off or on an infrequent occurrence, the consequences of the sub-sector’s bearing the potential for successive special levies is also relevant, and may render other high-level options more effective,” it said.

Spread the cost to other sectors

The option that is most frequently brought up as the most viable is to spread the cost over all of the other CSLR subsectors.

It is unlikely those in securities dealing or the other sectors would be happy with this choice, the paper said it is “likely to be more repeatable” than the alternatives.

“Like other aspects of the CSLR funding model this option involves cross-subsidisation, in this instance across sub-sectors,” it said.

“While not the default manner in which the CSLR is funded, this may be necessary in circumstances where it is the most effective means of paying timely compensation to eligible claimants.

“Spreading the costs to several sub-sectors recognises benefits of the scheme to the financial sector more broadly.”

It would also dampen the impact on the financial viability of the advice profession through a broader spread.

Just how broad is another question, as the minister can direct that the special levy be paid in multiple ways, each with a different level of administrative complexity.

For example, it could be apportioned based which subsectors are considered to be responsible for the costs, the subsectors with the greatest capacity to pay, or to spread it across a wide range of subsectors that have exposure to retail clients.

The only real certainty is that the excess cost will be “dealt with using the existing legislative framework”, however submissions to the consultation will also be assessed in terms of potential alternatives that the government could consider.