The Financial Services Compensation Scheme of Last Resort Levy Bill 2021 and Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021 and the Financial Sector Reform (Hayne Royal Commission Response No.3) Bill 2021 have been introduced into the House of Representatives to implement the Financial Services Compensation Scheme of Last Resort (CSLR).
The objective of the CSLR is to provide compensation to eligible consumers when they have an AFCA determination in their favour and when the relevant financial firm has not paid the consumer in accordance with the determination.
A relevant AFCA determination:
• relates to a complaint made by the consumer against a financial services entity which, at the time the complaint was made, was an AFCA member;
• requires the entity to pay an amount to the consumer and the determination is accepted by the person; and
• is about a particular kind of product or service
When AFCA has made a relevant determination and the financial firm has failed to pay the complainant, the complainant may apply to the operator of the CSLR for payment. If the eligibility criteria are met, the operator of the CSLR must compensate the complainant, up to $150,000.
Eligible determinations
To be a relevant AFCA determination, the determination must relate to one or more of the following products or services:
• engaging in credit activity (within the meaning of the National Consumer Credit Protection Act 2009) as a credit provider or other than as a credit provider.
• providing financial product advice that is personal advice provided to a person as a retail client about one or more products that include at least one relevant financial product;
• dealing in securities for a person as a retail client, other than issuing securities.
When the CSLR operator has paid an amount to a consumer in accordance with an AFCA determination (in place of the person, body corporate, partnership, or trustee against which the determination was made), the operator is required to report the fact of the payment to ASIC.
When this occurs, ASIC must cancel an Australian financial services licence or credit licence held by the relevant person, body corporate, partnership, Financial services compensation scheme of last resort or trustee.
Levies
For the scheme’s first levy period, the Commonwealth will provide funding to the CSLR operator to meet the initial estimate of claims, fees, and costs.
Commonwealth funding of the first year of the scheme does not include AFCA’s accumulated unpaid claims and fees. These costs will be met by a one-off levy on the ten largest financial firms during the first levy period.
Amounts to be paid for subsequeent annual levies will be subject to caps. The overall scheme levy cap is $250 million – this is the total amount that can be levied in a levy period on all persons across all sub-sectors. A sub-sector levy cap of $10 million will also apply – this is the amount of levy that may be imposed for any levy period on all persons in a particular sub-sector. The sub-sector levy cap may be increased in the regulations and may also be exceeded where a relevant Ministerial determination is made.
Commencement
The establishment of the scheme and the supporting levy framework will commence on the later of 1 January 2022 and the day after Royal Assent. The operator of the scheme can begin to make compensation payments under the scheme from 1 July 2022.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
