The Compensation Scheme of Last Resort (CSLR) will require about $28.9 million to pay for eligible claims in its first two years of operation.

CSLR provided the cost levy estimates yesterday as it prepares to launch on April 2, when consumers with unpaid Australian Financial Complaints Authority determinations can start applying for compensation.

The Federal Government will provide $4.8 million for the first levy period, which applies from April 2 to June 30, and about $24.1 million will be collected from the financial services industry to support the scheme from July 1 to June 30 next year.

As set out in the scheme’s legislation, its first year of operation will be funded federally and the financial services industry will pay annual levies from the second year onwards.

The estimates are based on actuarial principles, as required by legislation. CSLR engaged actuarial consultancy, Finity Consulting, to establish a policy for determining the estimates and to conduct detailed modelling and analysis for each estimate. The work was reviewed by a second, independent actuarial consultancy, Taylor Fry.

“These latest estimates are another milestone towards the CSLR being able to meet compensation claims from the victims of financial misconduct,” the CSLR Board said in a statement.

“We are committed to a robust and rigorous process that allows us to make the best estimates based on the best information available.”

CSLR says the levy estimates for the first two years of operations fall within the scheme’s annual levy cap of $250 million and sub-sector cap of $20 million.

For the July 1 to June 30 period, it estimates the financial advice sector will pay an $18.5 million levy, credit provision $1.5 million, credit intermediation $1.8 million and securities dealing $2.3 million.

The CSLR provides compensation of up to $150,000 to eligible consumers where an AFCA determination relating to provision of personal financial advice, credit intermediation, securities dealing and credit provision remains unpaid.

The scheme excludes funeral insurance and insurance arranged through a broker.

Financial Advice Association Australia CEO Sarah Abood is concerned about the levy’s impact on advisers.

“The CSLR is intended to promote trust and confidence in the financial services sector and in particular, financial advice,” she said.

“However, if advisers are driven out of business by rising costs, through being made to pay for the poor behaviour of those who left the sector years ago, there won’t be a financial advice sector left to have confidence in.”