CSLR is funded through a levy on four defined sub-sectors of the financial services industry, specifically:

  • credit intermediaries
  • credit providers
  • licensees providing financial advice
  • securities dealers.

Levies are scaled to the size of each financial firm.

The levy model is set out in:

Image
Levy Graphic

 

For current estimates, see:

Levy process

The following steps must occur before ASIC can invoice the levies:

  • CSLR calculates the levy estimate for each period in advance.
  • The estimate is recorded on the Federal Register of Legislation as a 'legislative instrument' alongside an explanatory memorandum.
  • The instrument is tabled in each House of Parliament.
  • Each House of Parliament is served with a 15-day Disallowance Period.
  • Once the Disallowance Period is over, ASIC determines the levy portion for each financial firm. The levy is based on subsector caps and the firm's size.
  • ASIC sends an invoice to each firm and collects payment for the Government.

Financial sub-sector caps

The total annual levy that may be imposed for any levy period across all sub-sectors must not exceed $250 million.

The sub-sector levy cap is $20 million for each sub-sector. 

Unless the Minister exercises their discretion to raise a ‘special levy’, this sub-sector levy cap of $20 million is the maximum levy that may be imposed during the annual levy period for all sub-sector members.

How levies are calculated

As required by law, CSLR estimates the costs to fund the scheme during the upcoming levy period.

The CSLR engages an independent actuarial consultancy as Principal Actuary.

The Principal Actuary recommends an estimate of costs by:

  • conducting detailed modelling and analysis
  • following legislative and regulatory compliance.

A second independent Reviewing Actuary reviews the estimate determined by the Principal Actuary as a quality assurance mechanism.

The Principal Actuary produces an independent report for each estimate, which we publish.

Levy types

The legislative framework outlines the levies that can be used to fund the CSLR scheme.

Late payments can result in penalties and other consequences.

Pre-CSLR

The pre-CSLR complaints levy was the first estimate made by the CSLR Board after the legislation was passed to fund expected claims and costs of the backlog of AFCA-paused complaints awaiting the legislated scope of CSLR.

Who Pays
Coverage
Period
The 10 largest banking and general/life insurance groups (based on income from the 2021–22 financial year).
 

Eligible AFCA complaints, including:

  • unpaid compensation for eligible complaints
  • AFCA complaint fees and charges.
Complaints lodged with AFCA before 8 September 2022 (regardless of when CSLR receives the claim).

Read more about the pre-CSLR complaint estimate.

Annual levy

The annual levy is funded by the industry subsectors specified in the legislation. The exception is the first year, funded by the Australian Government.

First levy period

Who pays
 
Coverage
Period
Australian Government

The levy includes:

  • unpaid compensation for eligible complaints
  • AFCA complaints fees and charges
  • CSLR operating costs
  • capital reserve contribution.
2 April–30 June 2024

Second levy period

Who pays
 
Coverage
Period
Industry subsectors

The levy includes:

  • unpaid compensation for eligible complaints
  • AFCA complaints fees and charges
  • CSLR operating costs
  • capital reserve contribution
  • ASIC administrative costs.
1 July 2024–30 June 2025 and subsequent years

Further levy

If claims and costs significantly exceed the initial estimate at the time it is determined, a further levy may be required. This levy can apply to one or more financial industry sub-sectors.

Further levies are capped at $20 million per subsector. As set by law, total annual levies can't exceed the cap.

Who pays
 
Coverage
Period
Industry subsectors

The levy includes:

  • amounts for claims payable in the levy period
  • AFCA complaints fees and charges invoiced to CSLR
  • CSLR operating costs
  • ASIC administrative costs.
Full financial year

Special levy

If an estimate significantly exceeds the $20 million subsector cap in a levy period, a special levy can apply.

The power to impose the levy resides with the Minister for Financial Services.

Who pays
Coverage
Period
Industry subsectors

The levy includes:

  • amounts for claims payable in the levy period
  • AFCA complaints fees and charges invoiced to CSLR
  • CSLR operating costs
  • ASIC administrative costs.
Full financial year

Role of other entities in the levy process

Treasury

Treasury advises the Government in the development of policy that becomes law.

The department was instrumental in the creation of CSLR.

Australian Securities and Investments Commission (ASIC)

ASIC is CSLR's oversight body. They ensure we perform our role according to the legislation and other requirements.

ASIC determines and collects the industry levy that funds CSLR.

Australian Financial Complaints Authority (AFCA)

AFCA handles consumer complaints about financial products and services where financial loss has occurred.

If a complaint can't be resolved, AFCA might award compensation. If a financial firm becomes insolvent during this process, consumers might be eligible for CSLR compensation.

AFCA also helps CSLR estimate costs and fees for the annual levy.

The pre-CSLR complaints estimate is the first to be provided under the legislative framework passed by the Australian Government in June 2023.

Further estimates and annual levies will be:

  • Year 1 (April–June 2024): funded by the Australian Government.
  • Year 2 and ongoing (July 2024–June 2025): funded by relevant sectors of the financial services industry.

The legislation determines the levy as an estimate that is the sum of:

(a) the specified amount equal to what the CSLR operator reasonably believes (having regard to actuarial principles) will be the total amount of compensation that:

  1. will be payable under section 1063 of the Corporations Act 2001; and
  2. relates to pre-CSLR complaints; and

(b) the specified amount equal to what the CSLR operator reasonably believes (having regard to actuarial principles) will be the portion of the total amount of AFCA’s unpaid fees for all months that relates to pre-CSLR complaints; and

(c) the specified amount equal to AFCA’s accumulated unpaid fees.

The total value of this one-off levy cannot exceed the scheme levy cap of $250 million.

This estimate, following legislative processes, will form a one-off levy that is expected to pay eligible compensation claims from the pre-CSLR complaint backlog from 1 November 2018 to 7 September 2022.

Any complaints lodged from 8 September 2022 onward will be funded by annual levies.

The legislation requires payment of this pre-CSLR complaints levy by the ten-largest banking and general/life insurance groups by income from financial year 2021-2022, as reported by the Australian Taxation Office (ATO).

Funding will pay for compensation claims of up to $150,000 to eligible consumers who have been the victims of financial misconduct relating to personal financial advice, credit intermediation, securities dealing or credit provision.

About the pre-CSLR complaints estimate

The CSLR board has determined a pre-CSLR complaints estimate of $241 million.

This falls within the $250 million cap set in the legislation.

In accordance with the Act and its statutory obligations, the CSLR Board has determined the estimate having due regard to actuarial principles and in cooperation with qualified and recognised experts.

The Board has not deviated from the estimate determined in the report from independent actuarial consultant, Finity Consulting.

The Board reasonably believes, noting the prudent and realistic assumptions made by Finity Consulting, that the estimate accurately reflects the expected cost of meeting the pre-CSLR complaints.

It is further noted that a second independent actuarial consultant, Taylor Fry, has endorsed the methodology, analysis and determination of Finity Consulting.

How the estimate was calculated

CSLR Actuarial Policy

To meet its requirements under the legislation to apply ‘actuarial principles’ in reaching its decision, the CSLR Board established an Actuarial Policy.

This was designed with input from suitably qualified actuarial experts.

This policy provides the Board with a framework and principles to responsibly determine estimates for levies imposed under the legislation. The four guiding principles adopted were:

  1. Commitment to comply with all legislative and regulatory requirements in determining the estimate for the subsequent determination and imposition of the levy upon industry by the Australian Securities and Investment Commission (ASIC) to appropriately fund the CSLR Scheme.
  2. Seek professional assistance from suitably qualified experts to determine the estimate including the engagement of the Principal Actuary (Finity Consulting) to assist with its determination of the estimate in line with actuarial principles.
  3. Further seek professional assistance from suitably qualified experts to review the estimate once determined, including the engagement of the Reviewing Actuary (Taylor Fry) to review the determination of the estimate by the Principal Actuary (Finity Consulting) to ensure alignment with actuarial principles.
  4. Undertake to make diligent enquires and appropriate examinations of both the Principal Actuary’s (Finity Consulting) estimate, the Reviewing Actuary’s (Taylor Fry) quality assurance and all other enquiries or consideration of appropriate factors which the Board deems relevant to ensure that it is the Board’s reasonable belief that the estimate accurately reflects the expected cost of operating the scheme within the relevant period.

Independent estimate modelling and report

CSLR engaged the services of a leading actuarial consultancy Finity Consulting, as Principal Actuary, to undertake the detailed modelling and analysis, ensure compliance with legislative requirements, and confidence in the estimate.

Finity Consulting's recommendation for the Pre-CSLR Complaints Estimate is $241 million.

Taylor Fry, an independent actuarial consultancy, further reviewed and endorsed this report as the Reviewing Actuary.

A full copy of this report is available to provide transparency of the estimate modelling and assumptions.

About Finity

Finity is Australia’s largest independent actuarial and analytical consulting firm. Their actuarial services are provided by over 150 professionals with deep domain knowledge across the financial services industry, and the private and public sectors. They bring experience working on similar arrangements to CSLR, with the Securities Exchange Guarantee Corporation and the ASX.

About Taylor Fry

Taylor Fry has extensive experience working with government agencies to establish key actuarial processes and policies, as most recently demonstrated by work with the ARPC. It has proven experience providing actuarial quality assurance to a high-profile compensation scheme.

What happens next

Parliament must complete certain steps before ASIC can invoice the levy.

  1. The levy instrument and explanatory memorandum are registered on the Federal Register of Legislation managed by the Office of Parliamentary Counsel.
  2. The instrument is be tabled in each House of Parliament.
  3. A ‘disallowance period’ of 15 days for each House of Parliament is satisfied.
  4. ASIC determines the levy portion for each of the 10 financial firms based on the published ATO data.
  5. ASIC issues individual invoices to each firm. 
    1. The levy for the pre-CSLR complaints estimate is payable in two equal instalments. 
    2. The first instalment will be due within 30 days of the invoice date.
  6. ASIC collects the payment on behalf of Government.
  7. The government provides funds to CSLR. This allows CSLR to start paying compensation to eligible consumers.

The Compensation Scheme of Last Resort (CSLR) is an important piece of the external dispute resolution (EDR) framework in Australia. It was recommended by the Ramsay Review to “promote trust and confidence in the EDR framework and the financial services sectors more broadly” and was supported by the Financial Services Royal Commission.

The scheme is funded by industry, with maximum individual compensation claims of $150,000 available for eligible AFCA determinations of financial misconduct relating to personal financial advice, credit intermediation, securities dealing or credit provision.

The CSLR legislation passed by the Australian Parliament in June 2023, sets out the annual levy process. The Levy Act 2023, Levy Regulations 2023 and Levy (Collection) Act 2023 determine how estimates are calculated and levied on the relevant financial services sectors.

CSLR has determined the 1st and 2nd levy period estimates. Both fall the within $250 million annual levy cap, and $20 million sub-sector caps set in the legislation.

  • 1st levy period estimate of $4.8 million
    • Funded by the Australian Government.
    • This estimate is expected to pay eligible compensation claims, AFCA fees, CSLR operating costs and capital reserve contributions between 2 April 2024 to 30 June 2024.
       
  • 2nd levy period estimate of $24.1 million
    • Funded by the 4 financial subsectors covered by CSLR.
    • This estimate, following legislative processes, will form a levy that is expected to pay eligible compensation claims, AFCA fees, CSLR operating costs, ASIC administration costs and capital reserve contributions between 1 July 2024 to 30 June 2025.

Subsector breakdown

 1st Levy Period
(2 April to
30 June 2024)
2nd Levy Period
(1 July 2024
to 30 June 2025)
Personal financial advice$2.4M$18.5M
Credit intermediaries$0.8M$1.8M
Credit provision$0.7M$1.5M
Securities dealing$0.9M$2.3M
Total estimate$4.8M$24.1M

 

2nd levy period summary – calculating entity levy amounts

A summary of levies to assist entities in calculating the leviable amount can be viewed on the ASIC website.

The information collected from the Industry Funding annual return will be used for the calculations of levies. ASIC is responsible for calculating each leviable entity’s share of the total levy in accordance with the prescribed regulations.

ASIC will issue levy notices and collect levy payments on behalf of the Government.

How the estimate was calculated

In accordance with the Legislation and statutory obligations, CSLR has determined the estimates, having due regard to actuarial principles and in cooperation with suitably qualified and industry recognised experts.

CSLR has not deviated from the estimates determined in the report from the Principal Actuary, independent consultancy, Finity Consulting. CSLR reasonably believes, noting the prudent and realistic assumptions made by the Principal Actuary, that the estimates accurately reflect the expected total cost of the compensation payments to be issued and the associated costs of operating the scheme during the 1st and 2nd levy periods.

It is further noted that a Reviewing Actuary, independent actuarial consultant Taylor Fry, also endorsed the methodology and analysis used, and the determinations made, by the Principal Actuary.

CSLR Actuarial Policy

CSLR has adopted and implemented a Policy for Determination of Estimates for the First and Second Levy Periods, to ensure an appropriate framework and governance structure has been incorporated into the determination process which reflects its obligations under the legislation.

Independent estimate modelling and report

CSLR engaged the services of the Principal Actuary to undertake the detailed modelling and analysis, ensuring compliance with legislative requirements and confidence in the estimates.

The Principal Actuary’s recommendations were:

  • 1st levy period estimate of $4.8 million
  • 2nd levy period estimate of $24.1 million

A full copy of the report is available to provide transparency of the estimates modelling and assumptions.

Finity is Australia’s largest actuarial consulting firm. Their actuarial services are provided by over 150 professionals with deep domain knowledge across the financial services industry, and the private and public sectors. They bring experience working with other compensation arrangements, and across other Commonwealth and State Government schemes.

Taylor Fry has worked alongside government and industry across Australia and New Zealand for more than 20 years, providing quality assurance and tailored actuarial and analytics advice. Drawing on a wealth of market understanding and expertise, the independent consultancy has developed many long-standing relationships, including with compensation schemes – and most recently with the ARPC – by supporting leaders to make sound, evidence-based decisions.

Roles of CSLR, AFCA & ASIC

CSLR has been working closely with ASIC and the Government to establish the scheme. Each entity has a different legislated role:

  • CSLR is authorised by the Minister to determine the total estimate for the levy period to meet eligible claims and costs.
  • AFCA investigates complaints and determines if financial misconduct has occurred and the amount of compensation that should be made if substantiated.
  • ASIC applies the formula set out in the regulations to determine the levy share for each entity, issue levy notices and collect levy payments on behalf of the Australian Government.

What happens next

1st levy period estimate

The Australian Government fund the 1st levy period and it follows a different legislative process.

  • The notifiable instrument is registered on the Federal Register of Legislation, managed by the Office of Parliamentary Counsel. This formally notifies the Minister and Parliament of the estimate.
  • Government provides the funds to CSLR, so it can commence operations and pay compensation claims to eligible consumers.

2nd levy period estimate

The legislation requires certain steps must take place before ASIC is able to issue the levy notice.

  • Levy instrument and explanatory memorandum registered on the Federal Register of Legislation managed by the Office of Parliamentary Counsel.
  • Instrument tabled in each House of Parliament.
  • A ‘Disallowance period’ of 15 days for each House of Parliament needs to be satisfied.
  • ASIC calculates levy share for each entity based on the legislative requirements.
  • ASIC issues individual levy notices to each entity.
  • ASIC collects the payment on behalf of the Australian Government.
  • Government then provides the funds to CSLR.