Pannek calls scheme ‘unsustainable’ in current form
The Mortgage and Finance Association of Australia (MFAA) under chief executive Anja Pannek (pictured) has stated that mortgage brokers should be exempt from cross-subsiding the Compensation Scheme of Last Resort (CSLR) following today’s news of a severe cost blowout.
The scheme, which places a levy on the financial services industry to fund claims, has seen its annual cost surge from $4.8 million in 2024 to a projected $137.5 million by 2027.
But credit intermediaries (including brokers) make up a small fraction of these claims.
As it currently stands, credit intermediaries are liable to cough up an estimated $2.2 million of the 2027 levy – an increase from the $1.8 million levy for 2026. Personal financial advisers, meanwhile, are on the hook for $126.9 million of the 2027 CSLR estimate.
This presents a conundrum for the CSLR, as there is a statutory $20 million sub-sector annual cap. It raises the prospect of the CSLR seeking a special levy to address the shortfall.
The Minister for Financial Services Dan Mulino has the power to approve the special levy to address the shortfall. There are concerns that the broking industry will be called on to help plug the funding shortfall.
“The scheme in its current form is not sustainable,” said Pannek. “With what we are seeing in the personal financial advice sub-sector, the FY2027 estimates highlight special levies, which were originally anticipated for ‘black swan’ type events, may be required for years to come.”
Pannek continued: “We must avoid a situation where the financial services sector is trapped in a ‘Groundhog Day’ of repeated compensation events, permanent special levies and ongoing uncertainty.
“Allowing cross-subsidisation between sub-sectors creates a significant moral hazard. It means that industries such as mortgage broking will be penalised for failures occurring in other parts of the system. The priority must be addressing the root causes of misconduct and preventing future consumer harm.”
Pannek added that regulators should focus their efforts on sub-sectors where misconduct is rising and not impose additional costs or regulatory burden on sectors, such as broking, where misconduct remains low.
