Treasury Begins Consultation on CSLR Sustainability

Treasury has opened consultation on the long-term sustainability of the Compensation Scheme of Last Resort (CSLR), releasing a consultation paper as part of a broader package of financial services reform.

The paper focuses on options to improve the predictability and structure of CSLR funding arrangements, better align the scheme as a mechanism of last resort, and enhance recoveries. It follows significant pressure on the scheme stemming from the collapses of Dixon Advisory, United Global Capital, Shield Master Fund, and First Guardian.

NIBA's position on this issue is clear and well-established. General insurance intermediaries should not be asked to fund a shortfall they did not cause.

As NIBA put it in its submission to Treasury last year, the current funding pressures on the CSLR arise almost entirely from the large number of unpaid AFCA determinations linked to financial advice misconduct. General insurance brokers were deliberately excluded from the scheme's scope during its original design — a decision that reflected the sector's strong track record and the low number of unpaid AFCA determinations involving the sector.

NIBA's submission outlined five principles that should guide any funding decision: proportionality, fairness, efficiency, sound economic policy, and alignment with the original policy intent of the CSLR. On each measure, extending the levy to unrelated professions such as general insurance broking would impose costs on businesses and consumers without improving consumer protection outcomes.

NIBA also cautioned against using capacity to pay as a basis for levy allocation. Such an approach would penalise well-regulated and compliant professions, increase costs for consumers in those markets, and create perverse incentives by weakening accountability in the high-risk sectors that generated the problem.

NIBA will continue to engage actively with Treasury throughout this consultation process.