Treasury opens consultation for impending CSLR overhaul

The government has flagged that it will release three consultation papers on reforms to boost protection and trust in the superannuation and financial services sector following the collapses of the Shield and First Guardian Master Funds.

In a statement on Wednesday (8 April), Minister for Financial Services Daniel Mulino said that major fund collapses had highlighted the need for a comprehensive reform package to combat misconduct in the financial sector.

The consultation papers respectively focused on protecting consumers navigating the superannuation sector, cracking down on high-pressure sales tactics and ensuring the sustainability of the CSLR. Consultation, which opened on 7 April, is set to close on 22 May.

“The paper on the CSLR focuses on options to improve the predictability and structure of funding arrangements, better align the scheme as a mechanism of last resort, and enhance recoveries,” Mulino said.

The Financial Advice Association of Australia (FAAA) welcomed the consultation papers and said it would work with Parliament towards constructive, effective reforms.

“Preventing future collapses and improving the sustainability and fairness of the CSLR are critical issues for financial advisers, victims of misconduct. and consumers more broadly. We will carefully review the Government’s proposals in coming weeks and we will be engaging with our members on our responses,” FAAA chief executive Sarah Abood said.

“In the current system, a declining number of financial advisers are paying the largest share of the CSLR levy despite having nothing to do with the misconduct that gave rise to the need for consumer compensation.”

Joint accounting bodies had also previously called on Treasury to reform the design of the CSLR, labelling the current scheme as a “band-aid funding solution” to a much larger issue.

“The additional funding burden is disproportionately falling on the financial advice sector, in turn impacting on the financial viability of many financial advisers. This is unsustainable and will likely impact the ongoing viability of the scheme itself. Legislative reform is urgently needed to address this,” CA ANZ, CPA Australia and IPA said in a joint statement.

In its CSLR options paper, Treasury put forward a range of ideas to improve the compensation scheme’s function.

These included allowing the CSLR to deduct payments from compensation, expanding subrogation rights and considering responses to the role of SMSF losses in exerting pressure on the scheme.

Treasury noted that the CSLR currently did not account for compensation received through other avenues connected to the same matter, such as class action or insurance proceeds. It suggested that these amounts could be deducted from CSLR payments to improve the scheme’s sustainability.

It also found that the CSLR’s current subrogation rights were too limited to support meaningful recoveries, placing greater reliance on levies. The CSLR operator noted that these limitations restricted its ability to recover funds.

The government also put forward a series of “structural reform options,” including whether CSLR compensation settings needed to be changed, and whether the special levy should be recalibrated to ensure greater certainty and fairness in responding to funding pressures.

In the coming weeks, Mulino said he would convene a roundtable on the CSLR and consumer protection to hear directly from stakeholders.

“The Albanese Government will consider the outcomes of these consultations and progress a series of targeted, proportionate reforms which appropriately balance consumer protection, the risk of future collapses and the right of individuals to exercise choice in the superannuation system,” he said.