In this guide
Unfortunately, it’s not uncommon to read about consumers who have lost money due to the financial misconduct of financial service providers. While those providers may be required to pay compensation, many victims never receive it because the firm responsible is unable to pay, often due to insolvency.
This is why the Compensation Scheme of Last Resort (CSLR) was established by the Australian Government, commencing operations in April 2024.
The CSLR supports consumers who have been awarded compensation by the Australian Financial Complaints Authority (AFCA) but never receive that payment from the relevant financial services provider. In effect, it acts as a safety net for consumers harmed by financial misconduct.
What is covered by the CSLR?
The CSLR covers consumers who suffer financial loss after dealing with licensed financial firms that provide certain products or services. It does not apply to every financial service or type of misconduct.
The products and services covered by the CSLR include:
- Personal financial advice: For example, where inappropriate advice from a financial planner causes financial loss.
- Dealing in securities for retail clients: For example, where a stockbroker buys shares on your behalf and this results in financial loss.
- Providing credit: For example, where a credit provider gives you regulated credit that you can’t afford.
- Arranging credit: For example, where a mortgage broker inappropriately arranges finance for you.
Who is eligible for a payment under the CSLR?
Consumers must meet certain eligibility criteria to receive compensation through the CSLR.
The complaint must have already been dealt with by AFCA, and you must be awarded compensation for losses linked to an eligible product or service.
You must not be entitled to compensation under another statutory scheme. This is why the CSLR is described as compensation of ‘last resort’.
And the CSLR must reasonably believe that your awarded compensation is unlikely to be paid in full, after considering factors such as how long the amount has been unpaid, the financial firm’s financial position and its payment history.
How does the process work?
The following steps outline how the CSLR process works from start to finish:
Step 1. Consumer raises a complaint with AFCA
The consumer first complains to AFCA about a financial firm. The complaint must relate to a covered area, such as personal financial advice, credit intermediation, securities dealing or credit provision.
Step 2. AFCA assesses and determines the complaint
AFCA reviews whether the complaint is within its rules, gathers information and may issue a determination. If AFCA awards compensation and the consumer accepts the decision, the financial firm is expected to pay.
Step 3. The determination remains unpaid
If the firm is insolvent or otherwise cannot pay, AFCA takes reasonable steps to confirm that the compensation cannot be recovered.
Step 4. Consumer lodges a CSLR claim
The consumer submits a claim through the CSLR claims process, providing the AFCA determination. The CSLR may also require identity verification and supporting information.
Step 5. CSLR assesses eligibility
The CSLR checks whether the claim meets the legislative criteria, whether the matter falls within the scheme’s scope, and whether any part-payment or alternative source of compensation is available.
Step 6. CSLR makes an offer
If the claim is eligible, the CSLR calculates the compensation amount, subject to the scheme limit of up to $150,000 per claim. The claimant is then given a formal offer and must accept it within the required timeframe.
Step 7. Payment is made
Once the offer is accepted, the CSLR pays the approved compensation amount to the claimant.
2026 SMSF calendar
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How is the CSLR funded?
Under the current structure, the CSLR is funded mainly through annual levies payable by certain participants of the financial services industry, including:
- Australian Financial Services Licensees (AFSLs): Firms that provide personal financial advice to retail clients on relevant financial products. These AFSL holders are responsible for the advice their advisers provide to clients.
- Credit providers: Including banks, lenders, finance companies, and other organisations operating in Australia that provide credit products such as loans, credit cards and mortgages.
- Credit intermediaries: Including brokers, dealers, platforms and other businesses operating in Australia that help consumers or businesses find, apply for or arrange credit from credit providers, without necessarily being the lender themselves.
- Securities dealers: Including brokers, trading firms, investment banks and other financial businesses that buy, sell, arrange or facilitate transactions in securities such as shares, bonds and other investment products.
Importantly, the CSLR is not funded directly by consumers.
SMSFs and the CSLR
Self-managed super fund (SMSF) trustees or the fund members’ beneficiaries are eligible for compensation where there is a financial loss that has resulted from personal financial advice and where AFCA made a determination in the SMSF’s favour, which remains unpaid.
Importantly, the CSLR is not compensating the SMSF simply because an investment failed; it applies where misconduct linked to advice has already been established through the complaints process with AFCA, and the responsible firm cannot make the required compensation payment.
According to 2026 Treasury data, SMSF complainants accounted for about 93.1% of all paid and pending CSLR cases as at 28 February 2026.
This represented around $154.14 million in compensation payments, most of it tied to inappropriate advice from the financial advice subsector, but also through the collapse of the Dixon Advisory business, which was a large player in the SMSF marketplace.
It is also interesting to note that the average compensation awarded in complaints involving an SMSF was materially higher than for non-SMSF matters.
As it stands, SMSFs are not required to contribute or pay a levy to the CSLR; however, there have been proposals for that to change.
As the costs of running the CSLR have been considerably higher than expected and due to the high rate of payments being made to SMSF complainants, the federal government has begun a review and has suggested that SMSFs may need to start contributing to the CSLR fund.
The government’s review, Compensation Scheme of Last Resort (CSLR): Reform Options to Support Ongoing Sustainability Options, suggests two options relating to SMSFs.
Option one would require SMSFs to formally opt in to the scheme and would then require the fund to pay a levy to be covered. In cases where SMSFs opt out, they would not have any access to unpaid AFCA-awarded compensation through the CSLR.
Option two is to exclude all SMSFs from eligibility for compensation through the CSLR. This option still allows an SMSF to be awarded compensation through the usual AFCA process, however it would not allow payment through the CSLR to cover losses in circumstances where that compensation remains unpaid.
We will need to wait and see what the final outcomes are from this government review.
The bottom line
SMSF trustees should treat the CSLR as a limited safety net, not a substitute for due diligence.
Setting aside the proposed changes to the funding model, what stands out is that where SMSF trustees seek advice, it should be personal financial advice from properly licensed professionals. Keep in mind that the CSLR covers consumers who suffer financial loss after dealing with licensed financial firms.
SMSF trustees need to have a clear understanding of the advice they receive and make sure they keep detailed records of that advice. It’s also a good idea to keep any advice documents and make records of the questions asked of your adviser, the reasons for accepting or rejecting their recommendations and how those decisions align with the fund’s investment strategy and members’ retirement objectives.
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