Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Act 2023

The Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Act 2023 is an amending Act. It establishes the financial services compensation scheme of last resort by inserting Part 7.10B into the Corporations Act 2001 and by making related amendments connected with AFCA reporting, information sharing and reimbursement of certain unpaid AFCA fees.

The practical problem it addresses is specific. A person has an AFCA determination requiring a financial firm to pay them, the person has accepted that determination, but the amount is not paid and is unlikely to be fully paid. The Act creates a statutory pathway for compensation in that situation, subject to detailed eligibility rules. It also creates a framework under which certain unpaid AFCA fees are notified to, and paid by, the CSLR operator.

For business owners, this is not just a consumer redress measure in the background. It changes the risk profile of unresolved AFCA matters, especially where there are payment delays, insolvency concerns, poor complaint handling or unpaid AFCA fees. It also means records, complaint files and payment evidence can become important in a formal statutory process.

The Act does not regulate all Australian businesses. It is tied to AFCA complaints and accepted AFCA determinations about particular kinds of products and services. A determination is only a relevant AFCA determination if the complaint was against a person who was a member of the AFCA scheme at the time of the complaint, and the complaint was about one of the categories listed in the Act.

Those categories are limited to: engaging in a credit activity under the National Consumer Credit Protection Act 2009, whether as a credit provider or otherwise; providing financial product advice that is personal advice to a person as a retail client about one or more products that include at least one relevant financial product; and dealing in securities for a person as a retail client, other than issuing securities.

That means many businesses are outside the scheme entirely. Even within financial services, the scheme is not a general refund system and does not automatically apply to every AFCA complaint. Businesses should be careful not to assume that any AFCA loss, any unpaid amount or any AFCA determination can be pushed into the scheme.

The compensation pathway only starts after AFCA has already made a determination and the person has accepted it. The determination must require the relevant entity to pay an amount to the person. If the determination is not accepted, or does not require payment, it does not fit the statutory definition used for the scheme.

Eligibility then depends on further steps. The person must notify AFCA within 12 months after the day the determination was made, unless AFCA agrees to a longer period, that they have not been paid. If the relevant entity still exists, AFCA must finish taking steps to require payment and must notify the person in writing that it has done so. The amount must still not have been fully paid.

The person must also not be eligible under another statutory compensation scheme for the same matters for an amount equal to or greater than the amount required by the AFCA determination. The person must apply to the CSLR operator in the approved form and must not have withdrawn the application. Finally, the CSLR operator must reasonably believe that the person is unlikely to be fully paid, having regard to the relevant entity's financial position if it still exists, or any other reason.

For businesses, the practical trigger point is earlier than many expect. Once an AFCA determination is made and accepted, any delay in payment, weak engagement with AFCA, or deterioration in solvency can move the matter toward the statutory scheme. Businesses should escalate these matters early rather than treating them as ordinary debt collection issues.

Where the relevant entity still exists, AFCA must finish taking steps to require payment before the person is eligible. The Act lists examples of those steps. They may include seeking an explanation from the entity for non-payment, explaining the consequences of not paying, discussing a reasonable payment plan or other alternatives, and if the entity is or has become a Chapter 5 body corporate, engaging with an officer of that body corporate to assess whether it will pay.

The Act also makes clear that AFCA may take other steps it considers appropriate and cost effective. This matters because businesses should not assume that AFCA's role ends when the determination is made. There may be a further period in which AFCA is actively trying to secure payment or assess whether payment is realistic.

If your business is under financial stress, in external administration or negotiating payment arrangements, those communications should be handled carefully and documented properly. They may affect whether and when a person becomes eligible to apply to the CSLR operator.

The compensation amount is one of the most important practical features of the Act. It is the lower of $150,000 and the amount payable under the relevant AFCA determination after subtracting specified amounts. The $150,000 cap should be treated as a central limit of the scheme, not a minor detail.

The deductions matter as much as the cap. The Act requires subtraction of any amount already paid under the AFCA determination, including partial payments. It also requires subtraction of any payments made to the person as an unsecured creditor of a Chapter 5 body corporate for the matters covered by the determination. In addition, any compensation available under another statutory compensation scheme for the same matters must be taken into account, along with any other prescribed payments.

The Act also notes that the amount payable cannot include an additional interest component that is not mentioned in the AFCA determination. So the scheme does not create a fresh right to extra interest beyond what AFCA actually determined.

For businesses, this means payment records are critical. If your business has made partial payments, entered into payment arrangements, or made distributions in an insolvency context, those amounts may directly affect the amount payable under the scheme. Poor records can create disputes and increase regulatory friction.

A person may apply to the CSLR operator in the approved form. An application is only in the approved form if it uses the form approved by the operator, includes the required information and declarations, and is given in the required manner. The person may amend the application before the operator makes an offer, and may withdraw the application at any time before accepting an offer.

If the person is eligible, the CSLR operator must offer compensation in writing. The offer must explain the effect of the subrogation provision. If the person is not eligible, the operator must notify them in writing and give reasons.

The operator may vary or revoke an offer before it is accepted if it reasonably believes there is an error, fraud, a change in circumstances affecting eligibility or amount, or other exceptional circumstances. If the person does not accept the offer within 90 days after the day it is made, the application is taken to be withdrawn.

For businesses, this means the position can still change after an application is lodged. New information, corrected payment data, insolvency developments or evidence of overlapping compensation may affect the final outcome. Keep records current and respond promptly if the operator seeks clarification.

If the CSLR operator pays compensation for a relevant AFCA determination and the AFCA member is or has become a Chapter 5 body corporate, the operator is subrogated, to the extent of that compensation amount, to rights and remedies the person may have in relation to the determination that are recognised by an officer of the Chapter 5 body corporate.

This is especially relevant for businesses in external administration and for advisers handling insolvency matters. It means the statutory payment can affect who stands in the shoes of the original claimant for recognised rights and remedies. Businesses and administrators should therefore treat AFCA liabilities, complaint files and creditor communications as part of the broader insolvency picture, not as isolated customer service issues.

The Act does more than deal with compensation to consumers. It also requires AFCA to notify the CSLR operator of AFCA's unpaid fees for a month ending on or after the accumulation recovery day, and of AFCA's accumulated unpaid fees, once AFCA has finished taking recovery steps. The accumulation recovery day is defined as 8 September 2022.

For monthly unpaid fees, AFCA must notify the operator in writing as soon as practicable after the end of the month. For accumulated unpaid fees, AFCA must notify the operator in writing as soon as practicable after the accumulation recovery day. The definitions of unpaid fees and accumulated unpaid fees are tied to finalised AFCA complaints about products or services of the kinds covered by the scheme, where AFCA charged the fee to the AFCA member or would have done so if the member still existed, the fee remains unpaid, and AFCA has completed recovery steps within the relevant period.

Once AFCA has notified the operator in accordance with the Act, the operator must pay AFCA an amount equal to those unpaid fees or accumulated unpaid fees, subject to the timing rule that payment must not be made before the start of the first levy period or any later day prescribed by regulations.

For businesses, unpaid AFCA fees should be treated as a real statutory exposure. They are not merely an internal AFCA billing issue. If your business has fee arrears linked to finalised complaints, those arrears can become part of the scheme architecture and should be identified in compliance reviews, board reporting and transaction due diligence.

The CSLR operator has power to obtain information and documents relevant to an application for compensation. If the operator has reason to believe a person can give relevant information or produce relevant documents, it may issue a written notice requiring that information or those documents to be provided in the manner and within the period specified in the notice.

The period in the notice must be at least 14 days after the notice is given. If documents are produced, the operator may take possession of them, make copies or extracts, and keep them as long as necessary for dealing with the application, while still allowing inspection by a person who would otherwise be entitled to inspect them.

Failing to comply with a notice without reasonable excuse is an offence. The Act states a penalty of 30 penalty units and makes the offence one of strict liability. If a current or former AFCA member fails without reasonable excuse to comply, the operator must notify AFCA and ASIC. The operator cannot require ASIC itself to provide information or documents under this power.

In practice, businesses should have a clear process for handling any notice from the operator. Complaint files, AFCA correspondence, payment records, insolvency documents and internal notes should be organised so they can be located quickly and reviewed before production.

The Act allows the Minister to authorise a person to operate the scheme by notifiable instrument if the Minister is satisfied the person will meet the mandatory requirements. Only one authorisation can be in force at a time, and the Minister may vary or revoke an authorisation.

The mandatory requirements show that the scheme is intended to be run as a formal, non-profit statutory mechanism. The operator must not require a person applying for compensation to pay any fee or charge in relation to the application. The operator must be a company limited by guarantee, its constitution must provide that it is not operated for profit, and Commonwealth-paid amounts must be maintained for the purposes of the scheme.

The constitution must also provide that the chair of the board is an independent person appointed by the Minister. Within six months after authorisation, the board must include a person who is a director of AFCA or the chair of AFCA, and a Fellow of the Institute of Actuaries of Australia with at least five years' experience in actuarial analysis. Operationally, the operator must administer the scheme in accordance with the legislation and regulations, manage money efficiently, effectively and economically, and have appropriate expertise available for compensation applications and actuarial analysis.

For businesses, the practical point is that dealings with the operator should be treated as dealings with a formal statutory body operating under defined governance and compliance requirements, not as an informal hardship process.

If you run a regulated financial services or credit business, AFCA matters should be treated as senior management issues. A single unpaid accepted determination can move into a statutory compensation framework, and unpaid AFCA fees can also have consequences under the same legislative architecture.

If you are buying or investing in a regulated business, ask for a schedule of AFCA complaints, accepted determinations, unpaid amounts, payment plans, insolvency issues and fee arrears. These issues can affect valuation, risk allocation and post-completion remediation planning.

The Act received Royal Assent on 3 July 2023. Sections 1 to 3 commenced on that day. Schedule 1 commenced at the same time as the Financial Services Compensation Scheme of Last Resort Levy Act 2023, with the commencement table showing 4 July 2023.

The Act also defines the accumulation recovery day as 8 September 2022 for the unpaid AFCA fee framework. Because this is an amending Act, the most reliable day to day compliance reading is the current consolidated text of the Corporations Act 2001 together with any related regulations and connected levy legislation.

The official source is the Federal Register of Legislation entry for the Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Act 2023, No. 46 of 2023. This page is based on the enacted text and focuses on the practical operation of the amendments described in that legislation.

Because the Act amends other legislation, businesses should verify the current consolidated position before relying on this page for a live matter, especially where regulations, levy rules or later amendments may affect the operative text.