Stephen Jones

The government has passed CSLR legislation for which it will cover expenses for the next financial year, but the future cost to advisers is yet to be known.

The CSLR will facilitate compensation of up to $150,000 to consumers who have an unpaid determination from AFCA under four different sectors: personal financial advice to retail clients, securities dealing for retail clients, providing credit, and arranging credit.

Consumers will be able to lodge claims for compensation from April 2024, with the first compensation payments to follow shortly thereafter.

The government will fund the body to establish the CSLR and first levy through to the end of FY24, but the scheme will be funded by the industry after that at the minister’s discretion.

There is a sector levy cap of $20 million included in the legislation, but a July 2021 consultation paper from Treasury estimated the ongoing levy would be $6.17 million a year, four years after the system was implemented.

In year one, the total levy would be $12.27 million (including capital reservice and establishment costs), which will be covered by the government, while year two and three will be $7.48 million which includes further capital reserve contributions.

The industry-pays model had been the contentious part of the legislation, with several parties like the Financial Services Council and Stockbrokers and Investment Advisers Association arguing the scheme doesn’t relate to misconduct in their areas.

In a media release on Thursday, the Minister for Financial Services Stephen Jones said this is a significant victory for over 2000 people who have been waiting for a resolution to their cases.

“The successful implementation of the CSLR will further strengthen consumer trust and confidence in Australia’s financial system,” he said.

However, Financial Advice Association CEO Sarah Abood said there are concerns the running costs of the scheme may become onerous for advisers.

“There are estimates as high as $1250 per adviser if the sector cap of $20 million were to be reached,” Abood said in a media release on Friday afternoon.

However, she noted the expected amount will be closer to $375 per adviser, based on the $6 million a year Treasury estimate.

“We really will need to keep any eye on those running costs and ensure they are reasonable,” Abood said.

Floodgate opened