Big banks and insurers could be on the hook to fund a possible $100 million shortfall in payments to former Dixon Advisory clients who have sought compensation via a government scheme to help victims of financial misconduct.

The Compensation Scheme of Last Resort, which is set pay out at least $300 million to victims – mainly relating to Dixon Advisory – has been branded a moral hazard by Liberal senator Andrew Bragg, who says regulators won’t pursue misconduct if taxpayer and industry funded funds are available.