How we’re funded
The Compensation Scheme of Last Resort is funded by an annual levy payable by:
- Licensees who provide personal financial advice to retail clients on relevant financial products
- credit intermediaries
- credit providers
- securities dealers
CSLR legislation enacted by the Australian Parliament in June 2023, provides the legislative framework for the operation of the CSLR . The Levy Act 2023, Levy Regulations 2023 and Levy (Collection) Act 2023 specify how estimates are calculated and imposed on the relevant financial services sectors.
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.
Levy process
The Levy Collection Act requires the CSLR to estimate the total claims, fees and costs to fund the scheme for a levy period. The following components of the calculation are required for the levy estimate, as set out in the Levy Collection Act:
- amount of compensation, including AFCA fees and any recoveries;
- ASIC costs;
- CSLR administrative costs;
- capital contributions; and
- excesses or shortfalls from a prior levy period.
The CSLR engages an independent actuary to calculate and recommend an estimate of costs by:
- conducting detailed modelling and analysis
- following legislative and regulatory compliance
The actuary produces an independent report for each estimate, which the CSLR will then publish.
CSLR Actuarial Policy
The CSLR Board has established an Actuarial Policy that provides agreed principles and a framework for CSLR in relation to its responsibility to determine estimates. This was designed with input from CSLR’s Principal Actuary, Finity Consulting. The guiding principles are:
- CSLR is committed to strengthening the trust and confidence in the dispute resolution framework for financial services by providing a fair and reasonable compensation service for eligible consumers.
- CSLR is committed to complying with all legislative and regulatory requirements in determining the estimates for each levy period.
- CSLR recognises the impact of the CSLR Scheme on the relevant Sub-Sectors and seeks to operate a cost-effective, efficient and economical service and to ensure the funds levied on the financial service industry are used appropriately and transparently to promote trust in the Scheme.
- CSLR will seek professional assistance from suitably qualified experts to determine the estimates, including the engagement of the Principal Actuary and the Reviewing Actuary to assist with its determination and independent review of estimates, having regard to actuarial principles.
- CSLR will make all necessary diligent enquiries and consider any appropriate factors that the Board deems relevant to ensure that it is the Board’s reasonable belief that the estimates reflect the expected cost of operating the Scheme during the relevant period.