Australia's Department of the Treasury published an options paper seeking industry feedback on targeted, technical and structural reforms to the Compensation Scheme of Last Resort (CSLR) to support the scheme’s ongoing sustainability and operation. Treasury points to estimated scheme costs of AUD 75.7 million in 2025–26 and projected costs of more than AUD 137 million in 2026–27, largely attributable to the personal financial advice sub-sector and excluding potential liabilities from the Shield and First Guardian matters. Reform options include giving the CSLR operator clearer power to deduct from compensation amounts recovered elsewhere (including insurance proceeds, class actions, deeds of company arrangement and retained assets) and expanding subrogation rights to improve recoveries, potentially covering the full Australian Financial Complaints Authority (AFCA) determination amount and extending to additional recovery sources such as professional indemnity insurers and AFCA members that are individuals or partnerships. Treasury also proposes technical fixes to payment and levy mechanics, including allowing compensation to be split across multiple accounts, adjusting levy exemptions and minimum levy settings, limiting CSLR payments where determinations include unauthorised or out-of-scope components, and reducing the parliamentary disallowance period for levy instruments to five sitting days. Structural options include recalibrating CSLR payments for CSLR-eligible financial advice determinations by either limiting compensation to portfolio-level capital loss or applying a prescribed counterfactual benchmark such as CPI or the 10-year Australian Government bond rate, and introducing a rules-based three-tier special levy waterfall with tier caps, while limiting any sub-sector’s total exposure in a levy period to AUD 40 million and retaining the overall scheme cap of AUD 250 million. Submissions are invited by 22 May 2026, and Treasury notes the proposals have not received Government approval and are not law. Stakeholders are cautioned that the Shield Master Fund and First Guardian Master Fund matters are before the Federal Court and subject to ongoing Australian Securities and Investments Commission investigations.
Department of Treasury (Australia) 2026-04-07
Australia's Department of the Treasury launches consultation on Compensation Scheme of Last Resort sustainability reforms
The Australian Treasury has released an options paper on targeted reforms to the Compensation Scheme of Last Resort to support its long-term sustainability, amid projected costs of AUD 75.7 million in 2025–26 and over AUD 137 million in 2026–27. Proposals include enhanced recovery and subrogation powers, changes to payment and levy mechanics, recalibrated compensation for financial advice determinations, and a rules-based three-tier special levy waterfall with sub-sector and overall caps. Treasury stresses the options are not yet Government policy or law and notes the Shield Master Fund and First Guardian Master Fund matters remain before the Federal Court and under ASIC investigation.