The Compensation Scheme of Last Resort (CSLR) starts today, April 2nd, as proposed by the 2017 Ramsay Review and supported by the Banking Royal Commission.
Its purpose is to provide compensation, up to $150,000, to eligible consumers who have suffered financial services misconduct and haven’t received compensation due to the financial firm’s insolvency.
This scheme is now a crucial part of Australia’s consumer protection framework, aiming to help consumers when other avenues for redress are not available. Its presence will enhance confidence in the financial services sector.
To qualify for compensation, claimants must have experienced financial misconduct, determined by the Australian Financial Complaints Authority (AFCA), related to covered financial products and services. These include investment advice, trading stocks or bonds, borrowing directly from a financial company, or assistance with borrowing, such as through a mortgage broker.
Are you eligible?
To be eligible for compensation, the matter must be in relation to financial misconduct, in one or more of the financial products and services covered by CSLR:
● Advice on money matters like investments.
● Buying and selling stocks or bonds.
● Borrowing money directly from a financial company.
● Getting help to borrow money, like from a mortgage broker.
Eligibility involves a three-step process: lodging a complaint with AFCA, completing the AFCA complaint process resulting in compensation, and the financial firm’s failure to pay the awarded compensation, which must be reported to AFCA. After completing these steps, consumers can apply for compensation from the CSLR.
- A person has lodged a complaint with AFCA about misconduct by a financial firm.
- The AFCA complaint process has been completed, and compensation awarded.
- The financial firm that had the determination made against it did not pay the
compensation, and this has been reported to AFCA.
Other financial services that the CSLR is unable to assist include: Managed investment collective investment schemes; dealing in foreign exchange or derivatives; arranging insurance (e.g. through a broker), superannuation, scams and insurance.
How to make a claim for compensation for CSLR?
To make a claim, eligible claimants should register on our Claims Portal and submit their claim details along with their AFCA determination and confirmation of unpaid compensation. This confirmation is issued by AFCA once the claimant has reported to them that they have not been paid by the financial institution in question and AFCA has followed up with the financial institution for payment.
Eligible claimants have 90 days to accept the offer and provide their bank details via the Claims Portal, after which we will transfer the compensation to them.
CSLR sets funding estimates
The Compensation Scheme of Last Resort (CSLR) has announced estimates for funding victims of financial misconduct. The scheme will cover claims for two levy periods. During the first period, from April 2, 2024, to June 30, 2024, the Australian Government will provide $4.8 million. The second period, from July 1, 2024, to June 30, 2025, will see $24.1 million, with $18.5 million from the financial advice sector. The CSLR will compensate eligible consumers affected by financial misconduct, such as personal financial advice or securities dealing. Funding comes from levies imposed on financial firms.
ASIC will collect levies based on estimates determined by the CSLR. These estimates underwent actuarial review by Finity Consulting and Taylor Fry. The scheme’s establishment legislation passed in June 2023. It aims to provide redress for victims of financial misconduct, offering up to $150,000 per claim.
In her remarks on the launch, inaugural CSLR Chair Jo-Anne Bloch emphasized the previously limited and often inaccessible compensation options for cases of insolvency. “Large sums were simply written off, with no second chances to recoup the losses. The CSLR provides a crucial safety net,” she said.
Inaugural CSLR CEO David Berry highlighted the financial and emotional stress experienced by those left without redress for misconduct. “Our task is to ensure that those who have experienced financial loss through no fault of their own receive recompense, in line with the legislation that underpins our work,” he stated. Berry also acknowledged the financial support from the industry through levies on covered sub-sectors, noting that contributions from industry would not only compensate eligible claimants but also encourage support for strong standards, enhancing trust and confidence in the financial services sector.
“We are focused on delivering a scheme that operates efficiently, economically, and effectively,” he assured the industry.
Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP, emphasized the significance of the Compensation Scheme of Last Resort in strengthening consumer trust and confidence in Australia’s financial system. “This scheme will give victims an avenue for redress when things go wrong,” he said, highlighting the government’s commitment to robust consumer protections and the implementation of recommendations from the Hayne Royal Commission.
CSLR levies will be collected from credit intermediaries, credit providers, licensees providing financial advice, and securities dealers. The levies are calculated by the Australian Securities and Investments Commission (ASIC) in accordance with federal legislation. The CSLR is managed independently and operates under parliamentary legislation.
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