URGENT UPDATE: The Compensation Scheme of Last Resort (CSLR) is facing a staggering claims increase, with costs projected to soar to $137.5 million in the 2027 financial year. This figure represents a dramatic rise from $4.8 million in 2024, raising serious questions about the scheme’s long-term viability.
CSLR chief executive David Berry revealed that the 2027 forecast excludes potential claims related to the $1 billion collapse of investment schemes, indicating more financial strain ahead. The shocking escalation in claims is forcing discussions about a special levy on the financial services industry, as the CSLR struggles to meet the needs of victims of financial misconduct.
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When the scheme was set up, the scale of what we are seeing now was not really considered,”
said Berry. He warns that under a worst-case scenario, the financial industry could face payouts of up to $880 million to investors affected by the recent collapses. However, Berry noted that a more likely scenario would see costs around $370 million if fewer than 8,800 victims file claims.
The CSLR, established in January 2023, was designed to compensate victims when the responsible party is unable to pay. It is funded by a levy on banks, financial advisers, and other financial institutions. The scheme’s current financial strain raises urgent concerns among industry leaders and victims alike.
The Australian Securities and Investment Commission (ASIC) is intensifying its investigation into the two failed managed investment schemes—Shield and First Guardian—which have left thousands of investors at risk. ASIC has already reached out to around 3,000 clients affected by the collapse of Shield, marking a pivotal moment in efforts to recover lost investments.
In a series of legal actions, ASIC is pursuing compensation from Equity Trustees, which allegedly failed to protect consumers from the faulty Shield product. The regulatory body has also filed claims against other financial entities, highlighting the growing urgency to hold responsible parties accountable.
The escalating costs associated with the CSLR levy have alarmed major industry bodies, prompting discussions about the future of the program. Sources indicate that Financial Services Minister Daniel Mulino is working to convene a roundtable discussion with stakeholders before the end of the year.
Berry acknowledges the scheme’s sustainability challenges but emphasizes the human impact of these financial failures. “
That said, there are real victims here … the consequence here for individuals, mum and dad investors, has been severe,”
he stated.
As the CSLR prepares to address these urgent challenges, the financial community remains on high alert. With the increasing likelihood of additional levies and ongoing investigations, stakeholders are urged to stay informed about developments that could affect their financial future.
The situation is evolving rapidly, and further updates are expected as authorities continue to navigate the complexities of these financial misconduct cases.
