The Compensation Scheme of Last Resort's (CSLR) Initial Levy Estimate for financial year 2027 is out — and the total bill has skyrocketed.
For the 2026-2027 financial year, the CSLR expects it will need $137.5 million to pay out to roughly 912 customer claims from failed financial firms. That's nearly double when compared with the revised figure of $75.7 million needed from the previous year. The surge in levies indicates that firm failures are still having a major impact on the scheme.
Moreover, the independent, government-established company — which is funded by industry levies and overseen by ASIC — also said the amount estimated for the 2026-2027 year might rise even more as more information emerges. Most notably, the latest CSLR estimate excludes potential costs from two major failed financial firm collapses: Shield and First Guardian.
"Right now, there are too many uncertainties to reliably estimate the potential impact Shield and First Guardian [have on] the scheme," said CSLR Chief Executive Officer David Berry.
Because of this, the CSLR is warning that estimates might increase further.
"The rate and scale of firm failures aren't slowing," Berry said. "The number of impacted consumers continues to rise, and the proportionate negative impact caused by a relative few remains significant."
The scheme was introduced in 2023 to protect consumers from financial misconduct. By contrast, funds, or levies, needed to fund financial services claims in 2024 was $4.8 million.
The bulk of the current levy estimates fall on the personal financial advice sector, which is slated to pay $126.9 million, far exceeding the legal cap of $20 million. Since the estimate breaches this limit, the CSLR is legally required to produce a revised estimate by June 2026.
While the rising levies might rattle the market, mortgage and finance brokers face only a minor hit. The sector is expected to pay approximately $2.2 million in levies for the financial year, a slight rise from the $1.8 million forecasted, reflecting the small number of consumer complaints or claims involving brokers.
"At the end of the day, [the CSLR] doesn't appear to have a major impact on mortgage brokers at all," Peter White, managing director at the Finance Brokers Association of Australasia (FBAA), told Australian Broker. "Largely the impact is on the financial planning and financial services sector, and the amount getting pushed back to brokers is incredibly small. The big issues for today are in financial services. That's been happening in the financial planning sector, which is where the bulk of the fines are.
"So it's good for brokers," White continued. "I don't know if [the CSLR] will increase the actual levy for brokers or not compared to last year. But if it does, I suspect it would be fairly minor. It's great for brokers. It means brokers are doing the right thing."
However, the Mortgage and Finance Association of Australia (MFAA) emphasized that the scheme’s funding should not require some parts of the industry to shoulder the costs for others. Each subsector should contribute its fair share, rather than one group subsidizing another, the broking industry body said.
"Allowing cross-subsidisation between sub-sectors creates a significant moral hazard," said MFAA Chief Executive Officer Anja Pannek. "It means that industries such as mortgage broking will be penalised for failures occurring in other parts of the system. The priority must be addressing the root causes of misconduct and preventing future consumer harm."
