In its submission to Treasury, the association again pushed to spread the costs required to cover the deficit in unpaid consumer compensation claims across all Australian Financial Complaints Authority (AFCA) subsectors, based on their capacity to pay.
This comes as the Mortgage and Finance Association of Australia (MFAA) reaffirmed its opposition to mortgage and finance brokers contributing to the special levy.
SMSFA CEO Peter Burgess conceded that, at first glance, it might seem unfair for one subsector to cover another’s unpaid claims, but “the reality is that the current CSLR model is not equitable”.
“Each subsector is mandated to fund compensation for the misconduct and deliberate negligence of their peers over which they have no control nor influence,” he said.
Burgess said while the estimated $47 million shortfall for 2025–26 is attributed to the financial advice subsector, Australian Financial Services licensees who are AFCA members are not responsible for this significant and concerning shortfall.
However, since the current Compensation Scheme of Last Resort (CSLR) industry funding model does not attribute direct industry culpability for specific instances or classes of misconduct, he insisted that spreading the cost is “the most effective way to quickly compensate eligible claimants”.
At the same time, Burgess said the government should also bear some of the responsibility, since it is the only stakeholder with the power to enact and affect the regulatory setting that participants must operate within.
“While the need for a special levy was considered in the design of the CLSR as a key funding mechanism for a ‘black swan’ event’ following a large failure, it was not designed to fund the flock of black swans that we have experienced and appear to continue to experience in recent times,” Burgess said.
The association had previously criticised the CSLR’s current design in an earlier submission to Treasury’s ongoing post-implementation review of the scheme in March this year, specifically highlighting the “black swan” phenomenon.
At the time, it stated that “holding a sector accountable for the failures of firms who intentionally prioritise profit to the detriment of their clients is not only unjustifiable, but unjust.”
Overall, the association expressed support for the CSLR’s goal of providing financial compensation to consumers who experience losses due to negligent or poor financial advice.
“Consumers should have trust and confidence that awarded compensation claims will be paid, and in a timely manner, making it imperative that the right mechanism is chosen to meet the funding shortfall,” Burgess added.
