Compensation Scheme of Last Resort (CSLR): Reform options to support ongoing sustainability

The Super Members Council welcomes the opportunity to respond to this Treasury consultation on how best to ensure ongoing sustainability for the Compensation Scheme of Last Resort.

The CSLR was supposed to be a ‘last resort’ safety net
As its name underscores, the Compensation Scheme of Last Resort (CSLR) was originally established to be a genuine ‘last resort’ safety net for consumers who had suffered significant losses but could not be compensated by those responsible – such as when a financial services firm collapses. SMC strongly supports the existence of a genuine last resort compensation scheme.

A key design principle from the outset was that the scheme’s funding would be levied on the specific sub-sector of the financial services system from which the harm had originated. That principle is pivotal. It guards against the escalating moral hazard that necessarily arises if a levy is widened to capture consumers in safe, well-run parts of the financial services system which played no role in that consumer harm. The scheme was not designed to operate as an ongoing mechanism to redistribute the costs of recurring misconduct across the financial system, nor to require consumers in one part of the system to subsidise repeated failures in another.