Treasury's Initiative to Bolster Professional Indemnity Insurance and CSLR

The CSLR was established to ensure that consumers who have suffered loss through misconduct have access to redress when all other avenues have failed. Since its inception in April 2024, the CSLR has facilitated compensation payments of up to $150,000 to eligible consumers with unpaid determinations from the Australian Financial Complaints Authority (AFCA).

However, the increasing costs associated with the CSLR have prompted the government to seek a more robust 'first line of defence' to fund consumer compensation. The consultation paper released by Treasury outlines the need to enhance the effectiveness of PI insurance in responding to claims for compensation, thereby reducing the reliance on the CSLR.

Industry stakeholders, including financial advisers and insurance providers, are encouraged to participate in the consultation process, which is open for submissions until 13 February. The feedback gathered will inform the development of reform options to support the ongoing sustainability of the CSLR.

It's important to note that any proposals to enhance the effectiveness of PI insurance must consider the broader context of the supply, quality, and pricing of PI insurance, as well as any related regulatory or business costs for licensees.

As the consultation progresses, further discussions and an options paper on broader reforms and technical changes to the CSLR are expected to occur early in 2026. These efforts aim to ensure that the CSLR remains sustainable and continues to provide essential consumer protection within Australia's financial system.