The Joint Accounting Bodies submitted a response to the Treasury’s consultation on the Compensation Scheme of Last Resort (CSLR) exceeding sub-sector levy cap consultation, highlighting deep structural flaws and calling for urgent legislative reform.

The current CSLR framework as a temporary fix to a systemic issue. The growing number of misconduct cases in financial services has placed unsustainable pressure on the CSLR, with the financial advice sector disproportionately bearing the cost. This burden threatens the viability of small practices and risks undermining the scheme itself.

CSLR should truly function as a “last resort,” activated only after all other avenues for compensation have been exhausted.

The Joint Accounting Bodies argue that the CSLR should truly function as a “last resort,” activated only after all other avenues for compensation have been exhausted. A key concern is the inequity in how compensation liabilities are distributed. Despite multiple players contributing to consumer losses including superannuation funds, managed investment schemes (MISs), and research houses the financial advice sector remains the primary target for levies. This is especially problematic given the declining number of advisers and the unchanged levy burden.

The submission calls for a multi-pronged reform strategy:

• A review of Professional Indemnity Insurance requirements to ensure robust coverage, including run-off cover.
• Greater utilisation of Part 23 of the SIS Act, which allows super fund trustees to seek financial assistance for losses due to fraud or theft.
• Tighter regulation of MISs and scrutiny of conflicts of interest.
• Government participation in CSLR funding, given its regulatory role and the levies already paid by industry.
• Implementation of the Australian Law Reform Commission’s recommendations to simplify financial services legislation. It is our view that because of excessive complexity, compliance with the current drafting of these laws is difficult for all participants in the financial services laws. In addition, consumers often do not know their rights under these laws.

The CSLR framework must be re-designed as a matter of urgency.