A CSLR Levy Guide for AFSL Holders

Introduction

The Compensation Scheme of Last Resort (CSLR) is a pivotal safeguard for consumers, established to provide compensation to eligible individuals with an unpaid determination from the Australian Financial Complaints Authority (AFCA). For financial services licensees, the introduction of the CSLR brings a mandatory annual levy, creating a recurring financial obligation that directly impacts budgeting and compliance strategies.

Unlike fixed fees, this industry-funded levy is dynamic and can fluctuate based on claim volumes and risks within specific sub-sectors of the financial services industry. This guide provides essential information for financial advice licensees, demystifying the CSLR levy’s mechanics and offering practical guidance to help directors and compliance managers navigate this new financial obligation.

What is the CSLR?

An Industry-Funded Consumer Safety Net

The CSLR is an industry-funded safety net designed to assist eligible consumers who have received a determination from AFCA in their favour, but have not received payment because the financial firm involved has not paid the amount owed. This situation typically occurs when a financial firm becomes insolvent.

Commencing operations on 2 April 2024, the CSLR operates as an independent, not-for-profit company with several key features:

• It is legislated to provide compensation up to a maximum of $150,000 for each eligible claim
• While initially funded by the government during its early operational period
• It is now sustained through annual levies imposed on specific sub-sectors within the financial services industry

The CSLR’s Role as a Last Resort

The CSLR was established in response to recommendations from both the Ramsay Review and the Hayne Royal Commission, which identified a critical need for stronger consumer protections in the financial system. Its primary purpose is to enhance consumer trust by providing compensation when all other avenues for recovery have failed.

As the name suggests, the scheme functions strictly as a ‘last resort’ measure, only activating after all reasonable steps have been taken to recover funds from the financial firm in question.

Importantly, the CSLR’s obligation to pay compensation is not dependent on several other factors, including:

• The consumer pursuing private legal action against the firm
• The payment of any proceeds or dividends from insolvency or class action proceedings
• Attempts by the consumer to claim against the financial firm’s professional indemnity insurance policy

Who Pays the CSLR Levy

The 4 Leviable Industry Sub-Sectors

The CSLR is funded by an annual levy imposed on four specific sub-sectors within the financial services industry. The Financial Services Compensation Scheme of Last Resort Levy Regulations 2023 (Cth) clearly outlines which entities must contribute to the scheme. If your business activities fall within one or more of these categories, you are obligated to pay the CSLR levy.

The four leviable industry sub-sectors include:

Sub-Sector	Description
Licensees providing personal advice to retail clients	Includes Australian Financial Services (AFS) licensees, such as financial planners and investment advisers, who provide personal financial advice on relevant financial products to retail clients.
Credit providers	Encompasses entities that provide regulated credit to consumers under the National Consumer Credit Protection Act 2009 (Cth).
Credit intermediaries	Businesses that arrange credit on behalf of consumers, primarily including mortgage brokers and other credit brokers.
Securities dealers	Consists of licensees that deal in securities on behalf of retail clients, typically including stockbrokers and share trading platforms.

Obligations for Multi-Sector Licensees

A financial services licensee may operate across several of the defined sub-sectors. If your entity’s business activities span more than one of these four categories during the same levy period, you will be liable for the levy relevant to each sub-sector in which you operate.

This means a single licensee could receive a levy notice that includes charges for multiple sub-sectors. For example, if a financial firm holds licences that classify it as both a credit provider and a credit intermediary, it will be required to pay the CSLR levy applicable to both of those sub-sectors.

The final levy notice issued by ASIC will consolidate these obligations and reflect the total amount due across all relevant categories. Therefore, licensees should check their classification on the ASIC Regulatory Portal to confirm their specific obligations.

How the Annual CSLR Levy is Calculated

The Four-Step Process from Unpaid Claim to Annual Levy

The annual CSLR levy calculation follows a structured, four-step process that transforms an unpaid consumer claim into a financial obligation for licensees. This process ensures the scheme remains properly funded to meet both compensation and operational costs.

The process unfolds as follows:

1. AFCA Identifies Unpaid Determinations: AFCA notifies the CSLR operator of determinations in favor of consumers that remain unpaid due to financial firm insolvency or inability to pay.
2. The CSLR Operator Pays Compensation: After confirming eligibility, the CSLR operator compensates the affected consumer up to the scheme’s cap of $150,000.
3. The CSLR Operator Calculates Total Annual Costs: The operator determines the total estimated costs for each sub-sector, including:
   • Compensation payments
   • AFCA fees
   • Operational expenses
   • Capital reserve contributions
4. ASIC Allocates and Collects the Levy: The Australian Securities and Investments Commission (ASIC) uses these cost estimates to calculate and issue levy notices to individual licensees within each sub-sector, collecting payments on behalf of the government.

Calculating Your Levy Payment

An individual licensee’s annual levy amount is determined by a two-part structure outlined in the Financial Services Compensation Scheme of Last Resort Levy Regulations 2023 (Cth). This approach ensures all liable entities contribute while scaling costs based on business activity.

Each entity’s levy consists of two components:

Levy Component	Description
Minimum levy component	A flat fee of $100 for each sub-sector in which the licensee operates.
Graduated levy component	A variable amount calculated based on the licensee’s business activity metrics from a “qualifying period.”

The qualifying period is defined in the Financial Services Compensation Scheme of Last Resort Levy Act 2023 (Cth) as the financial year that began 24 months before the start of the current levy period. For example, the levy for the 2025-26 period uses business activity metrics from the 2023-24 financial year.

The specific metric used for the graduated component varies by sub-sector, such as:

• The number of financial advisers for the personal advice sub-sector
• Transaction turnover for securities dealers

Understanding Annual Levy Caps & the Special Levy

The legislative framework for the CSLR includes caps to manage the financial impact on the industry. Each of the four sub-sectors has an annual levy cap of $20 million for a given levy period.

When the CSLR operator’s estimated costs for a particular sub-sector exceed this $20 million cap, a special levy may be imposed. For instance, if the estimated costs for the financial advice sub-sector reach $70 million, the annual levy remains capped at $20 million.

The remaining amount can only be recovered through a special levy, which requires a formal determination by the Minister. This determination is subject to a parliamentary disallowance process, adding a layer of political and legislative oversight.

Additionally, the entire scheme has an overall cap of $250 million for any single leviable period.

The CSLR Levy Process for Licensees

Key Timelines for Estimates & Invoices

For financial advice licensees, understanding the timeline for the CSLR levy is essential for effective budgeting. The process involves several steps before a final invoice is issued.

The CSLR operator typically releases an annual levy estimate, allowing licensees to anticipate the potential financial impact for the upcoming financial year.

Before ASIC can issue the final annual levy notices, a formal process must be completed. This includes:

• The CSLR operator registering the legislative instrument for the levy on the Federal Register of Legislation
• The instrument being tabled in both Houses of Parliament
• A 15-sitting-day disallowance period passing for each House of Parliament

After this disallowance period ends, ASIC generally aims to issue the final levy notices within 30 days. These notices are made available through the ASIC Regulatory Portal, with the billing contact registered on the portal receiving an email notification when the levy notice has been issued. For entities not registered on the portal, the notice will be sent by mail to the address registered with ASIC.

How to Pay Your Levy & Available Assistance

Once a CSLR levy notice is issued, payment is due within 30 business days from the date of issue. Licensees can access their notice via the ASIC Regulatory Portal and pay their levy through several methods outlined on the notice.

The available payment options include:

Payment Method	Details
BPAY	Using the specific BPAY details provided on the levy notice.
Electronic Funds Transfer (EFT)	Transferring funds directly from your financial institution using the correct reference number.
Credit Card	This option is available for payments made online through the ASIC Regulatory Portal.

Licensees facing financial difficulties have options for assistance:

• You can apply to ASIC for a payment plan in cases of financial hardship, which allows the levy to be paid in instalments
• While a payment plan is in place and being complied with, late payment penalties are suspended

In exceptional circumstances, licensees can also apply to ASIC for a waiver of the levy and any associated penalties. These circumstances are limited and may include:

• Natural disasters such as floods or fires
• Serious illness or death of an officeholder
• Delays caused by court proceedings

Applications for both payment plans and waivers must be submitted through the ASIC Regulatory Portal and should include supporting evidence to substantiate the claim. ASIC typically responds to waiver applications within 28 days.

The Ultimate Consequence: Licence Cancellation

Penalties for Failing to Pay the CSLR Levy

Failure to pay the CSLR levy debt represents a serious regulatory breach with escalating consequences. When payment is not received by the due date, financial penalties are immediately triggered:

• A late payment penalty of 20% per annum of the overdue amount is applied
• This penalty is calculated and added to the total payable amount each month the levy remains unpaid, underscoring the importance of setting up and maintaining a compliant AFSL.

If the CSLR levy and accumulated penalties remain unpaid in full after twelve months, ASIC may exercise its discretionary power to take more severe action, which may lead licensees to ask, can ASIC suspend my AFSL? These potential actions include:

• Cancelling the firm’s AFS Licence or Australian Credit Licence (ACL)
• Proceeding to deregister the company

It’s important to note that this regulatory response is not automatic but depends on ASIC’s assessment of the firm’s persistent failure to meet its funding obligations.

Mandatory Licence Cancellation for Unpaid AFCA Determinations

The most severe regulatory consequence under the CSLR framework occurs when a firm fails to pay an AFCA determination. This leads to a mandatory and non-reviewable licence cancellation, confirming that the firm is no longer fit to hold a licence.

This process follows three distinct steps:

1. A licensee fails to pay the monetary amount specified in a binding AFCA determination to a consumer
2. The CSLR pays compensation to the eligible consumer to satisfy that unpaid determination
3. The CSLR operator notifies ASIC of the firm’s identity and its failure to pay the compensation amount

Upon receiving this notification, ASIC is legislatively required to cancel the licensee’s AFS or credit licence, which is a direct application of ASIC’s cancellation powers. This action is automatic and not subject to any discretion or merits review, making it an immediate and final consequence for the non-compliant firm.

Case Studies in AFSL Cancellation

ASIC has demonstrated its commitment to enforcing the mandatory cancellation provisions of the CSLR framework. Several real-world cases illustrate the swift and non-negotiable nature of this enforcement action:

Company	Reason for Licence Cancellation
Easy Plan Financial Services Pty Ltd	ASIC cancelled the firm’s licence after the CSLR made a compensation payment of $84,600 for an unpaid AFCA award.
Viridian Equity Group Pty Ltd	Following the CSLR paying three compensation amounts totalling $450,000 for unpaid AFCA determinations, ASIC cancelled the company’s AFS licence.
Brite Advisors Pty Ltd	The firm’s AFS licence was cancelled after the CSLR paid $21,888.20 to a consumer for an unpaid AFCA determination and notified ASIC.
DOD Bookkeeping Pty Ltd	This firm’s AFS licence was cancelled following a CSLR payout of $64,860.05 for an unpaid determination.

These cases highlight the direct link between a CSLR payment for an unpaid determination and the automatic loss of a licence, underscoring the significant enforcement risk for non-compliance.

Conclusion

The CSLR establishes a mandatory annual levy for financial advice licensees, creating an industry-funded safety net for consumers with unpaid determinations from AFCA. Understanding the levy calculation, payment process, and the severe consequence of licence cancellation for non-compliance is essential for budgeting and maintaining regulatory standing.

Navigating these new obligations requires careful planning and expert guidance to ensure your financial services business remains compliant. For trusted expertise in managing your AFSL compliance framework, contact the specialists at AFSL House in New South Wales today to turn these regulatory challenges into strategic opportunities.

Frequently Asked Questions