Corporate insolvency


31 Jul 2023

Financial misconduct victims finally find relief as compensation of last resort arrives


5 min


Establishing the CSLR.

Nearly 5,000 consumer complaints against insolvent financial firms have been put on hold since April 2020 by the Australian Financial Complaints Authority (AFCA[1]) while awaiting the scope and timing details of the Financial Services Compensation Scheme of Last Resort (CSLR).

The Morrison Government attempted to create the CSLR in October 2021, followed by the Albanese Government attempts in September 2022 and March 2023. Finally, on 22 June 2023, parliament passed legislation to establish the CSLR with operations intended to commence in April 2024.

Similar to the FEG scheme, which serves as a safety net providing financial assistance to employees who have lost their jobs due to employer insolvency, the CSLR aims to compensate individuals for unpaid AFCA determinations. This typically occurs when the financial institution responsible for the misconduct becomes insolvent and is subject to an external administration, such as a liquidation.

Who will the CSLR cover?

The CSLR will compensate claims up to $150,000 to eligible consumers with an unpaid determination from AFCA relating to:

  • Personal financial advice provided to retail clients on relevant financial products.

  • Dealing in securities for retail clients (but not issuing securities).

  • Providing credit (where a financial firm provides funds).

  • Arranging credit (where someone like a mortgage or finance broker arranges funds).

At this point, other financial services like managed investment schemes and arranging insurance fall outside the CSLR scope. It is anticipated the AFCA will establish a not-for-profit subsidiary to operate the CSLR.

Who pays for CSLR?

The CSLR will be funded by an annual levy imposed on financial firms that are, by legislation, AFCA members. The levy will be collected by the Australian Securities and Investments Commission (ASIC). The Minister for Financial Services will also have the power to impose a special levy in response to unexpected events or cost requirements.

To ensure the CSLR being promptly implemented, the government will cover the initial costs associated with establishing the CSLR operator and the levy for the first levy period (ending June 2024[2]).

Additionally, the ten largest financial firms [3] will be required to pay a one-time levy to address the backlog of unpaid claims for complaints lodged with AFCA between 1 November 2018 and 7 September 2022.

CSLR’s limitations and calls for enhanced protection

While the CSLR is a significant step for consumer protection, some limitations that should be considered are:

  • The scope may need to be expanded to cover a wider range of financial products/services.

  • The proposed compensation cap of $150,000 may not sufficiently address consumer losses from financial advice scandals.

  • The CSLR will only apply to unpaid AFCA determinations. Unpaid victims of financial misconduct as determined by court and tribunal rulings will not be covered by the CSLR.

Patience still required

Although historically, the AFCA can process over 70,000 complaints a year, with each complaint typically taking up to 45 days to finalise, patience is still required for individuals impacted by financial misconduct. They await this crucial reform to be finalised, which includes the establishment of the CSLR operator and the progress of AFCA’s paused claims, both of which will require some time.

Undoubtedly, complainants and victims are devasted to continue waiting to be compensated for wrongdoing. This includes creditors of insolvent financial companies being handled by Worrells.

Providers of financial services and credit operations must be licensed by ASIC. They must meet specific requirements to get and hold their licence, and ASIC may cancel their licence or ban them if they fail to meet those requirements.

Before people/clients invest, get financial advice, or take on credit they should check ASIC’s registers to ensure companies and people are licensed to provide financial services or credit and have not been banned: click here for ASIC’s banned and disqualified register


[1] Australian Financial Complaints Authority (AFCA), is an independent and free dispute resolution scheme for financial products and services. AFCA offers consumers and small businesses an alternative to tribunals and courts for resolving complaints with their financial firms.

[2] Explanatory Memorandum, 5. Note that the first levy period begins on the day specified in a determination made by the Minister and ends on 30 June 2024 (clause 7 of the Levy Bill). 

[3] Explanatory Memorandum, 57. 

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