CSLR updates on levy payable by financial advisers
The Compensation Scheme of Last Resort (CSLR) has determined the estimates for the first and second levy periods that will fund claims from eligible consumers who have been the victims of financial misconduct.
As outlined in the legislation for the CSLR, the first levy period will be funded by the Australian Government and the second levy period by the sub-sectors of the financial services industry that are covered by the CSLR.
This is in addition to the already-announced pre-CSLR complaint estimate for the levy that will be paid by the 10 largest banking and insurance groups in the establishment phase of the CSLR. This provided $241 million as an initial funding estimate including provision for the majority of claims involving Dixon Advisory and Superannuation Services (DASS).
CSLR has provided a first levy period estimate of $4.8 million, which falls within the scheme’s annual levy cap of $250 million. As outlined in the legislation, the first levy period estimate will be funded by the Australian Government. This estimate is expected to meet eligible compensation claims and costs from the CSLR’s commencement on 2 April 2024 to 30 June 2024.
While financial firms will not contribute to the first levy period, CSLR noted the estimate falls within the legislated annual levy cap of $20 million for each subsector, with the estimate for each sub-sector being:
- Financial advice $2.4 million
- Credit provision $0.7 million
- Credit intermediation $0.8 million
- Securities dealing $0.9 million
In addition, CSLR has provided a second levy period estimate of $24.1 million, which also falls within the scheme’s annual levy cap of $250 million and within $20 million subsector cap.
This estimate is expected to meet eligible compensation claims and costs from 1 July 2024 to 30 June 2025.
The estimate for each sub-sector is:
- Financial advice $18.5 million
- Credit provision $1.5 million
- Credit intermediation $1.8 million
- Securities dealing $2.3 million
The second levy period estimate is subject to a “disallowance” period, with the Federal Parliament having the opportunity to object to the estimate within 15 parliamentary sitting days of the legislative instrument being published on the Federal Register of Legislation.
Once 15 parliamentary sitting days has elapsed, ASIC will issue the levy for each of the financial firms and collect the levy on behalf of the Federal Government.
The estimates for the first and second levy periods are based on actuarial principles, as required by legislation. The CSLR engaged the services of a leading actuarial consultancy, Finity Consulting, to establish a policy for determining the estimates and to conduct detailed modelling and analysis for each estimate. This work was reviewed by a second, independent actuarial consultancy, Taylor Fry.
The CSLR board said: “These latest estimates are another milestone towards the CSLR being able to meet compensation claims from the victims of financial misconduct. We are committed to a robust and rigorous process that allows us to make the best estimates based on the best information available.”
The funding will pay for compensation claims of up to $150,000 to eligible consumers who have been the victims of financial misconduct relating to personal financial advice, securities dealing for retail clients, the provision of credit or the arranging of credit.
