Legislation for the Compensation Scheme of Last Resort (CSLR) has secured passage in the Senate, clearing the way for the establishment of the Hayne royal commission-backed reform to provide financial redress for consumers.

The CSLR will facilitate compensation of up to $150,000 to consumers who have an unpaid determination from the Australian Financial Complaints Authority (AFCA) including personal financial advice provided to relevant retail clients on relevant products.

Funeral insurance and insurance arranged through a broker are outside the scope of the CSLR.

“This is a significant victory for over 2000 people, who have been waiting for a resolution on their cases,” Financial Services Minister and Assistant Treasurer Stephen Jones said.

“This implements one of the last outstanding recommendations from the Hayne royal commission.”

Mr Jones says consumers will be able to lodge claims for compensation from April next year, with the first compensation payments to follow shortly thereafter.

“To ensure the CSLR can commence as soon as possible, the Government will fund the costs to establish the body that will operate the CSLR, including funding the costs of the first levy period through to the end of the 2023/24 financial year,” he said.

After 2023/24 the last resort compensation scheme will then be funded through industry levies.

AFCA says with the passage of the CSLR – it cleared the House of Representatives in March – it will now begin reviewing the status of complaints that have been put on hold because they involved insolvent firms.

“We are pleased for those people who will be eligible to lodge a claim with the CSLR, as set out by the legislation,” AFCA said.

“As an independent and impartial ombudsmen service, AFCA will now review the status of complaints it has had on pause because of firm insolvency.

“There are nearly 5000 complaints currently on pause at AFCA, so this review will take some time to complete.”

Since April 2020 AFCA has paused complaints against insolvent financial firms while awaiting detail of the scope and timing of a CSLR.

Consumer advocate Choice says the CSLR measure is “one of the most important recommendations” from the Hayne royal commission.

“The compensation scheme has been a missing link in Australia’s financial system… thousands of Australians, whose complaints have been paused at [AFCA], will now be able to have their cases heard,” Choice CEO Alan Kirkland said.

“Once in operation, the Federal Government should consider whether the scheme needs to be expanded to other industries, including managed investment schemes.”