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Shadow minister for financial services Luke Howarth spoke at Momentum Media’s Election 2025 breakfast event in Sydney, revealing his thoughts on the Compensation Scheme of Last Resort (CSLR) and an intention to be done with it.
The CSLR commenced on 2 April 2024 and pays up to $150,000 in compensation to eligible consumers who have an unpaid determination from the Australian Financial Complaints Authority (AFCA) relating to personal financial advice, credit intermediation, securities dealing or credit provision, and meet other eligibility criteria.
Howarth labelled the scheme a “disaster” and said “fixing this will be a top priority if I am a Minister.”
“I think the whole thing’s stupid. It’s ridiculous ... It’s not a go at anyone who’s running it … the reality is it shouldn’t have been set up to start with,” he said.
“So, we don’t want to expand it. That’s the last thing we want to do. We want to get rid of it.”
Responding to Howarth’s remarks, MFAA CEO Anja Pannek said she supports the idea of reforms.
“We have consistently supported the CSLR, it is an important avenue for consumers to seek compensation,” Pannek said. “However, the scheme needs to be fit-for-purpose, sustainable and proportionate and we support any calls for an urgent, pragmatic and quick overhaul of the scheme.
“We don’t want to see the broking industry, which is already experiencing an increase in levies only one year into the scheme, to fund special levies when the reality is that brokers are producing good consumer outcomes, in the best interests of their clients.”
Pannek said that there is “little evidence of systemic consumer harm from the mortgage broking industry,” which should be considered.
In a submission, the MFAA provided some recommendations on CSLR reform:
- The CSLR should function as a true last-resort scheme, only to be accessed after all avenues for compensation have been exhausted, including professional indemnity insurance.
- In terms of funding gaps, the Minister for Financial Services should consider the impact of a special levy both on the affected subsector and the broader financial industry. The current CSLR structure allows cross-subsidisation so that losses incurred by one subsector are distributed across other subsectors.
- Rather than AFCA’s ‘but for’ test, which is used to assess compensation claims relating to financial advice, the MFAA seeks that the CSLR be allowed to assess claims on capital loss.
- Cap CSLR administration costs as a percentage of total levies to drive efficiencies and prevent excessive overheads.
At the same event, shadow treasurer Angus Taylor said the Coalition would work to reform the CSLR costs.
[Related: CSLR releases credit intermediary levy costs]
