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Legislation for the Compensation Scheme of Last Resort (CSLR) has passed, with the scheme expected to be operational from April 2024.
The Senate has passed legislation to establish the Compensation Scheme of Last Resort (CSLR), ensuring victims of financial misconduct can have access to redress and compensation.
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The passing of the bill implements one of the last outstanding recommendations from the banking royal commission.
The objective of the CSLR is to provide compensation to eligible consumers where they have an AFCA determination in their favour and where the relevant financial firm has not paid the consumer in accordance with the determination. For example, this could be because the company has gone insolvent.
The scheme facilitates the payment of up to $150,000 in compensation and covers five financial products and services, including personal advice on relevant financial products to retail clients, credit intermediation, securities dealing, credit provision, and insurance product distribution.
The Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Bill 2023, along with associated bills, finally passed both houses of Parliament last week (22 June), after Senate pushed it through.
Consumers who have suffered financial misconduct will therefore be able to lodge claims for compensation from April 2024.
Under the new legislation, the government will bear the costs of establishing the body responsible for operating the CSLR. This includes funding the initial levy period until the end of the 2023–24 financial year. Subsequently, the scheme will be funded by the industry.
According to the Minister for Financial Services, Stephen Jones, there are approximately 2,000 cases pending with AFCA, awaiting the implementation of the CSLR, while others continue to wait for their rightful redress.
Mr Jones stated that the passing of the bill was “a significant victory” for those who have been awaiting resolution.
“The Albanese government is committed to strong consumer protections in the financial sector. The successful implementation of the CSLR will further strengthen consumer trust and confidence in Australia’s financial system,” he said.
“The Albanese government’s legislation will provide over $230 million for over 2,000 potential victims. This is one of the last recommendations of the banking royal commission and will go a long way in helping victims.”
The Australian Financial Complaints Authority (AFCA) noted the passage of the CSLR legislation, stating that it would now begin reviewing the status of complaints that it had placed on pause because they involved insolvent firms.
“As Australia’s national financial ombudsman service, AFCA will also continue to work with consumers, including small businesses, and financial firms to resolve individual financial disputes, making formal determinations where agreement can’t be reached between the parties,” it said.
“An independent CSLR company will be responsible for managing access to compensation under the scheme if a firm does not pay an AFCA determination.”
As at 1 June 2023, the Australian Financial Complaints Authority (AFCA) had 4,875 open complaints involving 54 financial firms impacted by insolvency.
It is estimated that consumer claims in these complaints total more than $693 million. These complaints have had to be paused because of the firms’ insolvency but could potentially now be settled through the CSLR.
The CSLR operator will be established as an independent, not-for-profit company with its own board, and with funding arrangements put in place by the federal government.
The Financial Services Council (FSC) also welcomed the passage of the legislation, recognising the benefits it will bring to consumers. In a statement, the FSC said: “This policy has had bipartisan support and will provide consumers with a valued safety net.”
The Mortgage & Finance Association of Australia (MFAA) has previously outlined that it hopes there would be “no ask” for the mortgage broking industry to subsidise levies for claims made as a result of unpaid determinations arising out of other parts of the financial services industry.
[Related: MFAA sets out wishes for CSLR regime]
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