Derivatives Risk Statement and Reserve Strategy

Superannuation & SMSF StrategyUnder some circumstances the SIS Act and Regulations require a SMSF to have strategies other that the Investment Strategy, including a Derivatives Risk Statement and a Reserve Strategy:


SIS regulation 13.14 prohibits SMSFs from allowing charges to be created over fund assets, however as this is Superannuation there are a number of exceptions. The one of interest to this discussion is contained in regulation 13.15A. Broadly, this regulation allows a charge to be created over fund assets in relations to a derivatives contract, however there are a number of requirements.

The first is the definition of ‘derivatives contract’, which is defined to be an option or futures contract. The ATO ruling ATO ID 2007/57  sets out the implications of this for what are regarded as derivatives but don’t meet this definition – such as Certificates For Difference (CFDs) – as a CFD isn’t a option or futures contract it doesn’t meet the definition, and so the exemption under regulation 13.15A can’t apply and any charge created would be a breach of regulation 13.14 This is not to say that SMSFs cannot invest in CFDs or other non-options/futures derivatives (see ATO ID 2007/56 ) but that there cannot be a charge of assets.

Secondly the change must be in order to comply with the rules of an Approved Body.

Thirdly the fund must have a Derivatives Risk Statement and the investment must be in accordance with the Statement. The regulation requires the Statement to contain:

  • policies for the use of derivatives including analysis of risks
  • controls on the use of derivatives
  • processes to ensure the controls are effective

Para-phrased, see the full requirements in reg 13.15A

This is quite a substantial requirement, tending toward the requirements of an APRA-regulated fund, though likely appropriate given the nature of derivatives. It is perhaps unfortunate that similar requirements don’t apply to SMSFs investing in other complex securities which don’t require a charge over assets.


The Covenants inserted into the Governing Rules of an SMSF by s52B of the SIS Act include a requirement that where a fund maintains reserves the trustees:

  • ‘formulate, review regularly and give effect to a strategy for their prudential management’
    • which must be
      • consistent with the fund’s investment strategy, and
      • consistent with its capacity to discharge its liabilities

Source: Superannuation Industry (Supervision) Act 1993 s52B 

Though not directly relevant, given the lack of guidance on ‘prudential management’ of reserves for SMSFs, the following APRA publications may be of assistance:


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