The Financial Services Council has urged the government to reform the Compensation Scheme of Last Resort amid rising levy projections.
The Financial Services Council (FSC) has called for the cost of the Compensation Scheme of Last Resort (CSLR) to be brought to sustainable levels following the release of the initial levy estimate for FY2027 of $137.5 million, an 82 per cent increase from the revised estimate for FY2026.
Each year, the CSLR operator releases an initial forecast and a revised estimate of the scheme’s total expected claims, fees and operating costs for the relevant levy period. These figures are used to set the annual levy amounts for each CSLR sub-sector.
The revised estimate for FY2027, expected to be published in mid-2026, is likely to be materially higher than $137.5 million due to the volume of potential Shield and First Guardian-related claims and the Australian Financial Complaints Authority’s (AFCA) acceleration in progressing its claims backlog.
FSC chief executive Blake Briggs said the council recognises the CSLR plays an important role in protecting Australians who experience serious financial hardship as a result of financial advice failures, but warned that the scheme must be reformed to remain genuinely “last resort” and targeted to those most in need.
“The FY2027 estimate again includes another significant breach of the financial advice sub-sector cap, this time by a staggering $106.9 million. Without urgent reform to the CSLR’s design, special levies on industry will again be required to meet the gap for the foreseeable future,” Briggs said.
“This is another blow to law-abiding financial advice businesses who face continued cost pressures and who will again be called on to pay up to the $20 million sector sub-cap, and potentially above it, for the wrongdoing of others.”
The FSC opposes normalising the use of special levies as a routine funding mechanism, stating they are inherently unpredictable, undermine industry confidence, and act as a de-facto tax on business.
“The wider financial services sector is willing to do its part to meet the existing shortfall, provided the costs are distributed widely and fairly. A diversified approach avoids disproportionate impacts on individual subsectors and reduces the risk of cross-industry disputes,” Briggs said.
“However, socialising the cost of underwriting investment losses is not a sustainable long-term solution for a scheme that is on track to have continued cost blowouts into the foreseeable future.”
The FSC has urged the assistant treasurer to set out a clear pathway for reform to ensure the scheme is sustainable for consumers who need it and aligned with its original intent — to provide compensation as a last resort.
