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CSLR unintended consequences impacting SMSFs: report

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By Keeli Cambourne
October 01 2025
2 minute read
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SMSFs have been highlighted as one of the entities impacted by unintended consequences of legislation in the CSLR post-implementation review.

The Compensation Scheme of Last Resort (CSLR) on Monday (29 September) published its submission to the Department of Treasury’s post implementation review (PIR) into the scheme.

Lodged in March 2025, the CSLR’s response to the PIR details a holistic reflection of the observations it made during the first nine months of operation and focuses on four key areas, including the ongoing effectiveness and sustainability of the scheme, providing support to the victims of financial misconduct, the challenges of the current CSLR funding structure, and addressing industry practices to enhance consumer trust in the financial services sector.

 
 

The submission also outlines a series of recommendations, informed by practical experience and strategic insight, for the minister’s consideration.

These recommendations aim to strengthen the long-term sustainability of the scheme by addressing key challenges and identifying opportunities for meaningful improvement.

One of those issues addressed was the impact of legislation on unique claimant scenarios, including the impact of awards in favour of deregistered entities and wound-up self-managed super funds.

The review stated that compensation is only ever due to the person entitled to be paid in accordance with a relevant AFCA determination, and practical difficulties arise when compensation is due to a defunct entity, such as deregistered corporate entities and corporate trustees of SMSFs or wound-up SMSFs.

“The CSLR has encountered several claims with AFCA determinations where awards have been made in favour of a corporate trustee for an SMSF. However, complications arise when the corporate trustee has been deregistered,” the review said.

“The CSLR lacks the discretion under the legislation to deviate from the terms of the AFCA determination. Under the Corporations Act, any money owed to a deregistered company in its capacity as trustee for a trust or superannuation fund vests with ASIC.

“Consequently, the scheme is obligated to transfer compensation payments to ASIC’s unclaimed monies team. The ultimate beneficiaries of the SMSF are then required to request these funds from ASIC.”

It continued that this process is notably cumbersome and lengthy for claimants, many of whom have already endured several years seeking resolution from the financial firm, followed by AFCA, and now CSLR.

“The additional step of engaging with ASIC’s unclaimed monies team further prolongs their wait for compensation. A similar issue arises in relation to claims with AFCA determinations where awards have been made in favour of a corporate entity that has since been deregistered,” it said.

It added that where claims are made with AFCA and a determination finds in favour of an SMSF with individual trustees, and that SMSF has since been wound up, this can present complications for the CSLR.

“Given the passage of time between the time the AFCA determination was issued and the time a claim is made with the CSLR, it often results in claimants not being in possession of relevant documentation such as trust deeds, SMSF tax returns and other documents and results in the scheme experiencing challenges and delays identifying beneficiaries and ultimately making compensation payments,” it said.

The review said the CSLR recognises the need for a more streamlined and efficient process to alleviate the burden on claimants.

“It is recommended that consideration be given to potential adjustments and procedural improvements to expedite the resolution of claims and provide the scheme with sufficient discretion to, in appropriate circumstances, deviate from the terms of the AFCA determination, particularly concerning the direction of compensation payments,” it stated.

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