Industry bodies welcome reforms to the compensation scheme, calling for accountability and fairer funding arrangements
The Mortgage & Finance Association of Australia (MFAA) and the Australian Banking Association (ABA) have both endorsed a package of reforms to the Compensation Scheme of Last Resort (CSLR), announced by Assistant Treasurer and Minister for Financial Services Daniel Mulino at the National Press Club on Wednesday.
The reforms include changes to how exceptional losses are funded, a shift in compensation methodology away from counterfactual "but for" losses towards direct financial loss, and stronger recovery mechanisms requiring greater effort to recoup funds from those responsible before costs are passed on to levy-paying businesses.
The government will also expand the funding base by adding self-managed superannuation funds as Tier 3 levy payers under a new special levy waterfall, with contributions scaled to assets under management.
The MFAA said the changes reflected recommendations it had submitted to the government and raised at ministerial roundtables.
"This is an important step forward," said Anja Pannek (pictured top right), chief executive of the Mortgage & Finance Association of Australia. "We are pleased to see key principles the MFAA has consistently advocated for now reflected in the government's reforms.
"We have been clear throughout our engagement with government that we strongly support the CSLR's role in protecting consumers. But consumer protection and funding fairness are not competing objectives. A sustainable scheme needs both."
Pannek added that mortgage and finance brokers carry an exceptionally low claims profile under the CSLR, and that well-run businesses should not be required to disproportionately fund failures elsewhere in the financial services system.
"We have advocated for a more predictable and equitable approach to exceptional losses, where funding responsibility better reflects the sectors responsible for, or connected to, the underlying harm," she said. "The government's new waterfall approach represents important progress towards that principle.
"The move towards stronger recovery mechanisms and compensation based more closely on direct financial loss also responds directly to issues the MFAA has raised through the reform process."
On the forthcoming FY26–27 special levy — the scale of which the MFAA described as exceptional — the government committed to further analysis and consultation before the Minister determines allocations across the waterfall tiers.
"We particularly welcome the minister's commitment to further consultation on the FY26–27 special levy," Pannek said. "Given the scale and exceptional nature of those losses, the final allocation must be evidence based, proportionate and properly consider which parts of the financial services ecosystem are connected to the underlying harm.
"From the outset, our position has been that the CSLR should protect consumers while preserving accountability for where failures occur. A system where well run businesses continually subsidise misconduct in unrelated parts of the financial services sector is neither fair nor sustainable.
"These reforms move the scheme materially closer to the principles we have been advocating for: stronger accountability, better recovery, greater predictability and a closer relationship between the source of losses and who ultimately pays for them."
The ABA also welcomed the announcement, though it cautioned that the detail of implementation would be critical.
"It's been clear for some time that the current scheme is broken and urgent reform is needed," said Simon Birmingham (pictured top left), chief executive of the Australian Banking Association. "Banks welcome the government cracking down on untrustworthy lead generators to prevent consumers from being directed into unsuitable and high-risk financial products.
"The detail of these reforms will be crucial, such as ensuring that new 'waterfall' levy arrangements see the parties and sector genuinely responsible for misconduct being the first to pay.
"Banks urge all sides of politics to cooperate in ultimately supporting legislation to reform CSLR, to stem financial losses for consumers, and to reduce costs across the financial industry."
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