Federal Treasury has released a consultation paper on its planned reform of the compensation scheme of last resort, which needed a one-off special levy of $47.3 million to cover a funding shortfall this financial year.

Feedback is sought by May 22 on the eight proposals. One involves expanding the scheme’s subrogation rights and another aims to “embed greater certainty and fairness” within the special levy framework during times of significant funding pressure.

“This options paper is released in the context of claims exceeding early expectations and placing material pressure on the scheme’s funding settings,” the paper says.

“Since commencement, large-scale failures, including Dixon Advisory and United Global Capital, have driven costs beyond what was initially anticipated, requiring extraordinary funding measures, including a one-off levy on the 10 largest financial institutions to fund legacy claims.”

The paper says funding pressures will extend into 2026-27, with costs projected to exceed $137 million. More than $126 million of the projected cost is linked to the financial advice subsector, excluding potential liabilities from the Shield and First Guardian collapses.

“These developments highlight that the CSLR sits at the end of a chain of events that begin upstream,” the paper says.

“The government is seeking stakeholder feedback on the structural, targeted and technical reform options set out in this paper to support the CSLR’s ongoing sustainability and effective operation.”

Financial Services Minister Daniel Mulino will hold a second CSLR and consumer protection roundtable in coming weeks to hear directly from stakeholders on the reform options.