There are over 3000 claims that are expected to be heading to the Compensation Scheme of Last Resort – and while Dixon Advisory dominates that number with over 2700 claims – another 300 claims are from 31 different firms.
The latest figures from the Australian Financial Complaints Authority for Dixon Advisory claims are 2773, as of 30 June 2024.
“There’s about 300 additional [claims] beyond Dixon and 31 different financial firms are covered by those 300 roughly,” AFCA lead ombudsman Shail Singh said during a webinar hosted by the Financial Advice Association on Tuesday.
The CSLR discussion comes as advisers started receiving invoices overnight for the FY25 levy.
Financial advisers will be paying a collective $18.5 million in FY25 to fund the CSLR after the government side-stepped its obligation to fund the full first year of the scheme, meaning advisers will cover more Dixon claims than initially anticipated.
FAAA chief executive Sarah Abood said the association is supportive of the scheme but unhappy with the funding model which has left professional advisers covering the misconduct of unassociated businesses.
But while the scheme is working its way through the backlog of claims, CSLR chief executive officer David Berry said there are 102 actively managed claims (for all firms) at the moment and that 20 have been closed because they’ve been labelled as ineligible.
“The ones we’ve deemed ineligible, there’s been 10 of those where they’ve launched a claim with us, but they haven’t gone through the AFCA process,” Berry said.
In another instance, Berry said a claim was ruled ineligible because it was uncovered during their investigation that a determination had been paid before the company went into administration.
Berry noted other claims had been ruled ineligible because they related to claims with AFCA prior to November 2018 or didn’t involve financial misconduct.
Berry emphasised that the CSLR maintains a focus on building trust in the financial system and helping people view the CSLR as “a safety net”.
‘Not an easy ask’
As the name suggests, the scheme is meant to remediate victims of financial misconduct as a “last resort” and Berry described the ability to recover funds from an organisation is “not an easy ask” and said that although they have subrogation rights, they are very limited.
“First of all, it requires the organisation to recognise the determination and compensation as a debt”, Berry said.
“If the organisation has gone into administration and the determination is issued after that, it’s up to the administrator to say whether they accept that as a creditor or not.”
Essentially, whether the determination by AFCA is recognised as a debt or not is “at the discretion of the administrator or the liquidator”. The CSLR does not have power over that.
“If they accept our claim as a debt to be paid, then we can recover funds from the organisation,” Berry said.
The reason why administrators can be resistant to recognise debts is because there’s nothing to incentivise an administrator or liquidator to accept additional claims.
For the CSLR to be able to compel the administrator or liquidator, the legislation would have to change.
Berry clarified that if the determination by AFCA was given to the organisation prior to entering administration, the grounds are much stronger for the CSLR to get funds from any liquidation of the organisation in question.
“If the organisation’s not in administration and the determination has been issued, that’s recognised as an obligation for the organisation to pay,” Berry said.
Open for business
Berry revealed that the CSLR is currently dealing with a firm that is still operating and there are seven claims against it. Of the seven claims, “all but one of them are above the $150,000 cap”.
It is in both the claimant and the solvent firms for the firms to pay the full amount. The CSLR cap of $150,000 restricts claimants being paid the full amount they are owed. For a solvent firm, being unable to pay and the CSLR paying the claimant has severe consequences for the business.
Once the CSLR has paid compensation to the claimant, they are required to inform ASIC and from that, ASIC will cancel the license of the organisation. This is an incentive for the solvent firm paying the claimant within the required 28 days.
Singh clarified the role of the complaints authority. When a claim is with AFCA, it is not a legal matter. Singh explained that a claimant either chooses to go to AFCA with their claim or go to court.
“It’s either one or the other. Generally, when the matter is with us there shouldn’t be any concurrent legal action being taken.”
The Dixon Advisory claims are a unique matter as the situation began before the establishment of the CSLR.
“Dixon is a unique situation where basically the class action was taken prior to the CSLR being passed,” Singh said.
