The Compensation Scheme of Last Resort “remains an essential backstop” for consumers, Financial Services Minister Daniel Mulino says, as the federal government moves to fix the under-pressure program.

Reforms include providing a more predictable framework for funding exceptional losses via a “waterfall” special levy mechanism, and limiting CSLR payments to actual losses for applications made to the Australian Financial Complaints Authority after June 30 next year.

Dr Mulino says the government will apply the waterfall model to cover the scheme’s funding gap this financial year.

A special charge is required after the CSLR last month revised its FY27 levy estimate for the personal financial advice sector to $190.3 million from $126.9 million. It means there is a $170.3 million shortfall after deducting the sector’s maximum $20 million contribution to the scheme.

The government is also pursuing reforms to strengthen consumer protections in response to the blowout in CSLR claims triggered by collapses in investment schemes.

Measures announced by Dr Mulino include cracking down on harmful lead generation by banning unlicenced real-time communication with consumers about superannuation.

He says the government will “place the [scheme] on a firmer and fairer footing so it can continue to provide meaningful protection when all other measures have failed … [it] remains an essential backstop. It must remain there for consumers when all other protections have failed.”

The Insurance Council of Australia has applauded the government’s announcement.

“We particularly welcome measures that focus on preventing consumer harm and addressing issues earlier, reducing the need for consumers to rely on the CSLR in the first place,” a spokesperson said.

National Insurance Brokers Association CEO Richard Klipin has also welcomed the proposed measures – in particular the decision to ban unlicensed real-time contact on superannuation.

“That was the central recommendation of NIBA’s submission to Treasury, and it is the decision that allows the reform to reach the conduct that caused the harm,” the association said.

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