The Financial Advice Association Australia (FAAA) has raised concerns over the future costs of running the Compensation Scheme of Last Resort (CSLR) after government funding for the program’s first year of operation ends. 

Parliament passed the CSLR bill last week and Financial Services Minister Stephen Jones said the Federal Government will fund the cost to establish the body that will operate the scheme, including the costs of the first levy period through to the end of the 2023/24 financial year. 

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

“It’s important to acknowledge that advisers will not be bearing the setup costs and those in the first year of operation,” FAAA CEO Sarah Abood said. 

“We must ensure that all previous cases are fully dealt with in the first year, to ensure that current advisers are not being asked to pay for failures caused by those no longer in our sector. 

“That said, we do have concerns that the running costs of the scheme after the first year may be onerous for advisers. We really will need to keep any eye on those running costs and ensure they are reasonable.” 

The FAAA also continues to have “some reservations” about the effectiveness of the scheme, raising its longstanding concern that managed investment schemes (MIS) are excluded from the program. 

“A major source of consumer harm in our sector is MIS failure, and this isn’t covered in this legislation,” Ms Abood said. 

“We acknowledge that a review into the regulatory structure of MISs has been announced, and this is a positive step. However this could take some time while consumers remain unprotected from failures in this area.”