iscover 
The consultation will inform development of reform options to support the ongoing sustainability of the Compensation Scheme of Last Resort (CSLR). Further consultation will also occur early in 2026 through an options paper on broader reforms and technical changes to the CSLR itself to ensure it remains sustainable.
Stakeholder views are being sought on the effectiveness, adequacy, and resilience of professional indemnity insurance (PII) arrangements for Australian financial services and credit licensees. Specifically, it aims to understand whether the existing regulatory model, including legislative obligations and guidance, adequately ensures consumers are compensated when licensees face insufficient financial resources and whether ASIC’s oversight – both at the time of licensing and on an ongoing basis – is sufficient.
The consultation also explores market conditions for obtaining affordable and comprehensive PII cover, including for licensees with representative networks, and the potential role of industry bodies in supporting cost-effective access.
Feedback is therefore now being sought on the appropriateness of current PII minimum requirements, possible enhancements to coverage or scope, and strategies to address gaps between regulatory minima and commercially available policies.
Additionally, the consultation is examining how PII policies operate in the context of external administration, including their effectiveness in facilitating compensation, alignment with international standards, and enabling recovery of costs by the Compensation Scheme of Last Resort (CSLR).
Stakeholders are asked to consider both the benefits and costs of potential changes across these areas, as well as likely market responses.
The Treasury stated: “This paper seeks stakeholder feedback on the current operation of professional indemnity insurance and opportunities to enhance the effectiveness of professional indemnity insurance (PII) in the context of the CSLR.
“A more robust ‘first line of defence’ to fund consumer compensation could support the broader sustainability and purpose of the CSLR.”
With PII or an alternative arrangement required for licensing, the insurance is intended to act as a first line of defence for consumer compensation, with the CSLR stepping in only when insurance and other avenues fail.
The paper notes that improvements to PII could support the CSLR operating as a genuine last-resort mechanism, but stresses any reforms must be assessed in the context of regulatory and business costs.
The consultation follows Financial Services Minister Daniel Mulino’s announcement of a $47.3 million special levy to meet the rising financial demands of the CSLR.
Launched in 2024, the CSLR was set up to help consumers who have made a successful financial misconduct claim to the Australian Financial Complaints Authority (AFCA), but have not been paid by the financial firm involved due to insolvency.
The independent and not-for-profit body is authorised by the Australian government and can facilitate payments of up to $150,000 in compensation.
Funded by industry, the CSLR is limited to $20 million per individual subsector, but Mulino was notified in July that estimated claim costs for 2025–26 had ballooned to $67.3 million, well above the amount one subsector should pay.
Although the blowout was largely caused by the collapse of a number of financial advice companies, Mulino said that the levy would be applied across the financial sector, including the broking industry.
He said this decision was made “to reduce the burden on any one subsector and to ensure the sustainability of individual subsectors and the CSLR as a whole.”
This led to a backlash among broker associations, which said their members were footing the added bill for issues they were not responsible for.
The initial estimate for the next levy period (FY27) for the CSLR is set to be even larger. A total levy of $137.5 million will be needed to cover an expected 912 claims, but this may rise further.
Mortgage and Finance Association of Australia (MFAA) CEO Anja Pannek welcomed the announcement of a review and said: “We continue to support a fair, sustainable and well-targeted framework.
“The coming review is an important opportunity to address structural drivers of misconduct, improve recoveries from wrongdoers, and ensure the CSLR remains true to its purpose as a genuine ‘last resort’ scheme.”
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