On 22 June 2023, the Australian Parliament passed legislation establishing a Compensation Scheme of Last Resort (CSLR). The scheme commenced on 2 April 2024. More information including how to lodge a claim can be found on the CSLR website.

The CSLR can pay up to $150,000 in compensation to eligible consumers who have received an AFCA determination awarding compensation that remains unpaid in relation to complaints in one of four areas: personal financial advice, credit intermediation, securities dealing or credit provision.

The AFCA complaint process must first be completed before a claim can be lodged with the CSLR. An example overview of the process is provided below:

Consumer chooses toRAISE A CLAIMWITH CSLR01Consumer lodges aclaim on the CSLRwebsite, attachingthe AFCAdetermination andappropriate stepsnotice01Consumer raises complainton AFCA website againstfirm which is, or becomesinsolvent allegingmisconduct relating tofinancial advice, creditintermediation, securitiesdealing or credit provision02AFCA will review ifthe complaint iswithin AFCA Rulesand broadlyeligible for CSLR03The complaint isallocated to an AFCAcaseworker tocontact thecomplainant, discussthe issues andidentify informationrequired04Information isassessed, andan expediteddeterminationprepared05AFCA’s DecisionMakers will issue thedetermination to thecomplainant and tothe insolvencypractitioner06If the determinationis in favour of thecomplainant withcompensationawarded, it mustbe accepted by thecomplainant07The insolvent firmcannot pay.AFCA isrequired to report thefirm to ASICfor failureto give effect todeterminationandinformthe complainanttheycan lodge a claimwith CSLR08AFCA investigatealternative paymentoptions andprovides thecomplainant withan ‘appropriatesteps’ notice tomake a claim withthe CSLR Operator02Claim is allocated toa CSLR claimsofficer, to validatethe identity of theclaimant and furtherdetails from AFCAand financial firm /liquidator asrequired03CSLR will assesseligibility anddetermine theamount ofcompensationpayable04CSLR claims officercontacts the claimantto make an offer ofcompensation.Claimant has 90 daysto accept the offer inwriting05Claimant acceptsthe offer ofcompensation06CSLR makescompensationpayment toclaimantSTARTof AFCAcomplainantjourneySTARTof CSLRclaimant journeyENDofAFCA journeyENDofCSLR journeyACB

Scope of the CSLR

The CSLR provides compensation of up to $150,000 to eligible consumers who have 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).

Other financial services will be outside the scope of the CSLR, such as:

  • Managed investment schemes (a form of collective investment where investors pool money to be managed by a third party, such as a property fund or agricultural scheme).
  • Dealing in foreign exchange or derivatives
  • Arranging insurance (e.g. through a broker)
  • Funeral insurance

Please note this is not an exhaustive list. You can view the details of the legislation here.

Paused complaints update – May 2024

Over the last quarter, significant progress has been made in the processing of complaints that were paused pending the establishment of the CSLR.

AFCA has now investigated and finalised almost all cases that were initially assessed as likely out of scope for CSLR or outside of AFCA Rules. We acknowledge it may be very disappointing for these people after waiting so long for an outcome.

We have also continued to progress Dixon Advisory complaints. While work is well under way, it will take time to get through the large number of Dixon complaints, and we thank people for their patience.

What we’ve done:

  • Closed 97% of complaints which were outside of scope of the CSLR (1,709 complaints). Each complaint was carefully reviewed before this assessment was communicated to the consumer.
  • Continued investigations on in-scope complaints and issued determinations for CSLR eligible complaints.
  • Published the first lead determination for Dixon Advisory & Superannuation Services, which will guide decision making and assist efficient processing of the remaining cases. Further lead determinations on Dixon Advisory are also published here.
  • Doubled the size of our Investments and Advice team and appointed a Senior CSLR Ombudsman to accelerate Dixon case investigations.

Future updates:

AFCA have now finalised all paused complaints with the exception of Dixon Advisory and Youpla. Future updates on these entities will be made on our ‘current matters’ pages.

  • We will continue to accelerate work on the significant number of Dixon Advisory complaints. Ongoing updates on Dixon Advisory complaints will be made on the 'current matter' webpage.
  • We also acknowledge complaints relating to Youpla/ACBF and welcome Government’s announcement of support. More information can be found here.
  • New complaints involving financial firm insolvency will be managed through usual AFCA business processes.

Paused complaints update – February 2024

AFCA commenced our review of paused complaints immediately after the passing of the CSLR legislation in June 2023. At that time, there were approximately 5,000 consumers seeking an outcome.

We do not underestimate the importance of providing people with finality to their complaint. It is important that we balance timeliness with the need to thoroughly investigate each individual case with the care and rigour required.

We have reviewed many of these complaints to determine, at a high level, how many may be within scope of the CSLR. The scope set out in the legislation, provides access for eligible consumers who have an unpaid determination from AFCA relating to the following sub sectors:

  • 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).

Currently, at a high level we have assessed that approximately 2,000 complaints may fall within the CSLR scope. Just over 1,800 of these complaints were lodged with AFCA on or before 7 September 2022, designated as ‘pre-CSLR ‘in the legislation (this is currently approximately 88% of in-scope complaints). However, complaint numbers for eligible CSLR complaints are subject to change, due to:

  • Detailed investigations progressing with new information presented that changes our initial assessment of CSLR eligibility.
  • Complaints lodged during the ‘pre-CSLR’ period (1 November 2018 and 7 September 2022) may also be included if the Financial Firm becomes insolvent during or after the AFCA process is finalised, but prior to paying compensation awarded in the AFCA determination. Since June 2023, over 100 AFCA cases fall into this category and will form part of the pre-CSLR complaint backlog, if eligible.

AFCA is committed to sharing updates on the progression of these in-scope complaints for CSLR.

What we’ve done:

  • Increased our expert workforce to commence work immediately on these complaints once the legislation passed. With the certainty provided by the passing of this legislation in June 2023, this workforce investment has continued.
  • Reviewed complaints at a high level to determine how many may fall within the scope of the CSLR legislation.
  • Consulted industry and published the AFCA Approach to ‘Determining compensation in complaints against Financial Advice Firms where the Responsible Entity of a Managed Investment Scheme has become insolvent’ to ensure clarity and transparency of determinations.
  • Assembled dedicated teams of expert case resolution experts within CSLR eligible subsectors to prioritise complaint investigations.
  • Communicated with many impacted consumers whose complaints have been on pause to let them know if AFCA can progress their complaint. Where the complaint is not eligible for CSLR, AFCA will not progress the complaint.
  • Commenced investigations on in-scope complaints and issued determinations for eligible complaints. Where AFCA has awarded compensation in favour of the consumer, they can raise a claim with CSLR from April 2024 when operations commence.
  • Reviewed past AFCA determinations which remain unpaid due to financial firm insolvency. CSLR referral information has been provided to consumers where their complaint may be eligible, to raise a claim with CSLR from April 2024.

Over the coming period we will:

  • Continue investigations of paused complaints. Eligible complaints for CSLR will be finalised, so consumers can raise a claim with CSLR.
  • Accelerate work on the significant number of Dixon Advisory complaints. Updates are provided here.
  • Continue to seek opportunities for efficiencies through resourcing and technology to accelerate this important work.
  • Provide further updates on this page as this work progresses.

Paused complaints background

In April 2020, AFCA paused complaints against insolvent financial firms while awaiting detail of the scope and timing of a CSLR.

With the passing of the CSLR legislation, AFCA is now able to review the status of those paused complaints – which totalled 4,875 as at 1 June 2023.

These complaints include "closed” matters where there has already been an AFCA determination but no payment by the firm, as well as “open” complaints that AFCA has not yet considered because they were placed on pause.

AFCA will need to consider a range of questions for each open or closed complaint, in particular whether a complaint broadly falls within the scope of the CSLR, as laid out in the legislation.

With regard to an “open” complaint, AFCA will also need to consider whether the complaint is within AFCA’s jurisdiction, if this hasn’t already been determined – that is, whether it is the type of complaint AFCA is permitted to consider.

The high number of “open” complaints on pause means this work – the initial review and then consideration of the merits of individual complaints – will take some time.

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