SMC warns against unfair CSLR cross-subsidisation

The council has urged government to avoid shifting ballooning CSLR costs onto 12 million low- and middle-income Australians.

The Super Members Council has warned the government against passing rising Compensation Scheme of Last Resort (CSLR) costs onto 12 million low- and middle-income Australians, arguing it would breach the core principles that underpin the scheme.

The CSLR was established to compensate victims of financial misconduct only after all other recovery avenues had been exhausted. Its design was based on the principle that the sectors responsible for consumer harm would fund the compensation.

The Council said it would be a “clear breach” of that principle to require members of tightly regulated profit-to-member super funds to cover liabilities arising in unrelated parts of the financial system.

The FY26 special levy has been set at $47.3 million, while the FY27 estimate has already reached $107 million — far above the $20 million sub-sector cap. The Council noted that neither figure includes the potential wave of claims stemming from the high-profile Shield and First Guardian collapses, which could overwhelm the scheme.

Profit-to-member super funds are subject to strict prudential rules, including requirements to hold financial buffers and maintain strong governance frameworks. The Council argued that it would be inappropriate for millions of everyday Australians in these funds to absorb costs linked to failings elsewhere.

According to the Council, spreading excess costs across unrelated sub-sectors would “embed and escalate moral hazard”. It said forcing highly regulated entities to pay for misconduct in other parts of the financial system risks weakening accountability, encouraging risk-taking, and leaving some consumers “to pay twice”.

The Council has urged government to strengthen fairness and integrity within the CSLR by ruling out cross-subsidisation from APRA-regulated superannuation trustees and restoring the scheme to a genuine last-resort mechanism. 

This includes removing retrospective elements, setting clear guardrails for special levies, and considering targeted government funding for legacy cases to reset the system.

It also called for regulatory fixes — including stronger anti-hawking rules, tougher platform oversight, enhanced conflict-management controls and improved subrogation and recovery mechanisms — alongside exploration of alternative, fairer funding sources such as unclaimed money held by the ATO that remains unclaimed after exhaustive efforts.

The Council reiterated its call for stronger consumer protections to prevent the build-up of future CSLR liabilities. 

It pointed to the need for better enforcement of anti-hawking bans, tighter controls on platform and product oversight, and measures to ensure entities responsible for misconduct “pay to fix the problems” rather than shifting costs to others.

“It’s crucial to close the door to stop consumer harms like these in the first place. Prevention is always better than clean up,” said Super Members Council CEO Misha Schubert. 

“It’s just not fair to ask 12 million low- and middle-income Australians in the highly regulated super system to pay for compensation for other parts of the financial services system.”