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In correspondence seen by Broker Daily and sent by the Mortgage and Finance Association of Australia (MFAA) to its National Aggregator Forum members, the association estimated that the proposed ‘waterfall framework’ would equate to a levy of approximately $67 per credit representative, up from $5.72 last year.
Overall, the Compensation Scheme of Last Resort (CSLR) new framework would see credit intermediaries allocated approximately $7.8 million in special levy costs, compared with around $668,000 last year.
This special allocation is in addition to the ordinary annual funding levy, which has been estimated at $2.1 million for credit intermediaries.
Funding the $170m gap
Launched in 2024, the CSLR was set up to compensate eligible consumers who have received a favourable determination from the Australian Financial Complaints Authority (AFCA), but have been unable to recover the money owed because the financial firm involved has become insolvent.
The independent, not-for-profit body is authorised by the Australian government and can pay eligible consumers up to $150,000 in compensation.
Funded by industry, the CSLR has an annual levy cap of $20 million per individual subsector.
However, Treasury opened targeted consultation this week on how a $170.26 million special levy should be distributed after the CSLR operator’s found that claims, fees, and costs for 2026–27 would reach $198.07 million.
As ASIC can collect no more than $20 million annually from one subsector, the remaining $170.26 million would have to be funded through this special levy.
The costs largely relate to the collapse of financial advice companies, including Dixon Advisory and United Global Capital (UGC), which broker associations have previously argued have little connection to their members’ work.
To determine how the additional costs should be shared, the government has proposed a ‘waterfall framework’ to allocate the levy across the financial services industry in three tiers, according to each subsector’s perceived connection to the losses underlying the compensation claims.
Under the proposed model, the financial advice subsector would contribute first, followed by subsectors deemed connected to the losses, before the remaining costs are distributed across other retail-facing financial services subsectors.
MFAA CEO Anja Pannek said the industry supported the CSLR and its role in protecting consumers, but its costs had “increased substantially”.
“While mortgage brokers and aggregators were not responsible for the underlying consumer losses, the CSLR funding framework allows some costs to be shared more broadly across the financial services industry,” she said.
“The proposed allocation is based on a methodology linked to ASIC’s regulatory effort across different sectors. ASIC has undertaken considerable work in mortgage broking, including its review of compliance with the Best Interests Duty and its focus on fraud.
“This provides some context for the methodology, although the extent to which these activities have influenced the proposed allocation is not yet clear.”
‘Footing a bill that is not ours to carry’
Melissa Ashcroft, managing director of AAA Mortgages and an MFAA member, said the changes would have significant implications at both an industry-wide and individual level.
“The estimate of the proposed special levy rises from $5.72 to about $67 per credit representative sits on top of the annual levy of $37 per rep,” she said.
“Almost all of the increase traces back to financial planning and advice sector failures, not to anything in broking.
“Seems like brokers will, as part of the scheme, be footing a bill that is not ours to carry.”
Ashcroft added that while she supported the principle of the CSLR, she questioned its funding model and warned that the precedent could cost brokers significantly more in future.
“When costs from other parts of the financial services sector flow through to brokers at this scale, it starts to look less like a shared safety net and more like brokers underwriting other industries,” Ashcroft said.
Bernard Desmond, CEO of Blank Financial, also warned that the proposed approach risked setting a precedent.
“A jump from $5.72 to $67 per credit representative isn’t a minor adjustment. It’s an almost twelvefold increase, and it raises serious questions about the sustainability and fairness of the scheme,” Desmond said.
“Brokers who do the right thing shouldn’t continually be asked to pick up the bill for those who don’t.
“While $67 might not break a brokerage today, what happens when that becomes $200, $500 or more tomorrow? Without proper safeguards, we’re effectively handing the industry a blank cheque for failures it may have had no involvement in.”
What could be done?
The proposed $170.26 million special levy comprises $10 million from financial advice, $40 million from responsible entities of managed investment schemes, and $120.26 million across 21 retail-facing subsectors.
The advice contribution is additional to its $20 million annual levy. Tier 1 allows another contribution of up to $20 million, while connected sectors can contribute up to $40 million each under Tier 2.
Pannek said the MFAA had made a submission to Treasury seeking to reduce the broker channel’s exposure to the special levy.
She said: “In particular, we have asked Treasury to reconsider why the proposed contribution from the financial advice sector is $10 million when the framework allows for up to $20 million. We have also asked whether other sectors more closely connected to the losses should contribute before the remaining costs are shared more broadly.”
Desmond said he wanted to see three things changed: “Greater accountability: Those responsible for consumer losses should be pursued before the wider industry is asked to contribute.
“A fairer funding model: Levies should better reflect the actual risks and claims attributable to each sector, rather than disproportionately burdening compliant businesses.
“Greater transparency and cost controls: The industry deserves clear explanations for escalating costs, alongside meaningful safeguards against future increases.”
Ashcroft also called for a fairer, more transparent allocation model and measures to prevent the scheme’s costs from continuing to rise.
“I’d like to see a more transparent, risk-based allocation that reflects where claims actually originate, along with stronger measures to stop failed firms from reaching the scheme in the first place, such as tighter PI insurance requirements,” Ashcroft said.
[Related: AUSTRAC begins AML/CTF crackdown as broker obligations remain unclear]
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