FSI Submissions – SMSF Regulation

Nest egg, superannuaiton, SMSF, retirement
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The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received. Several industry bodies have used their submissions to argue that changes to how SMSFs are regulated is not required.

CPA  ‘ believes there is no evidence to suggest significant change is necessary regarding the structure, operation and/or regulation of SMSFs’.

ICAA believes ‘any further substantial regulation around the SMSF segment is unwarranted, creating artificial barriers to those wishing to control their own superannuation savings ‘.

SPAA believes that  ‘the current regulatory settings for the broader superannuation sector and SMSFs is correct and provides appropriate outcomes in relation to the character of SMSFs’.

The Switzer Financial Group Pty Ltd recommends ‘that there be no material changes in regard to the regulation of SMSFs, or operating standards as set out in the SIS Act and associated Regulations’.

Several other bodies recommended for increasing the consistency of superannuation regulation:

KPMG recommends for ‘consistency/lack of consistency in regulatory requirements between SMSFs and other superannuation schemes, particularly in relation to governance, risk management, and fit and proper requirements’.

CBA also showed concern regarding consistent regulation ‘the need for consistency of regulation across all superannuation funds, in light of the size and growth rate of the Self-Managed Superannuation Fund (SMSF) sector’.

However likely the most SMSF-negative submission so far comes from PWC Australia, which recommends SMSFs be regulated by ASIC (where as currently APRA and the ATO regulate superannuation funds), that only sophisticated investors be allowed SMSFs and for ASIC monitor and test SMSFs adherence to their Investment Strategies. According to ASIC in order to be a Sophisticated Investor requires:

  • a gross income of $250,000 or more per annum in each of the previous two years, or
  • net assets of at least $2.5 million

The following is the full text of the relevant PWC recommendations:

Recommendation 1:

‘That regulation of individual SMSFs is transferred to ASIC to be regulated as a financial product. Further, APRA be given a role in oversight and policy development to prevent a build-up of systemic risks related to SMSFs (eg excessive leverage).’

Recommendation 2:

‘ASIC develop an ownership test for SMSFs, so that SMSFs can only be controlled by sophisticated investors, as defined by chapter six of the Corporations Act 2001.ASIC to also develop a surveillance process similar to that employed to monitor the provision of financial advice.’

Recommendation 3:

‘ASIC ensure that surveillance practices extend to monitoring and testing SMSF trustee’s adherence to the requirement to have a documented investment strategy setting out how the fund will meet its long term investment objectives including asset allocation, diversification, liquidity and the appropriate level of borrowings.’

These recommendations show a far more negative view of SMSFs than the majority view of the submissions so far, which have been broadly supportive, while allowing for reforms designed to improve the superannuation system. The closest to such negative submission was from Industry Super Australia – which represents industry super funds. It is noted on PWCs website that they provide audit and other services to ‘18 of the Top 20 industry funds‘.

The submissions to the Financial System Inquiry can be found on the inquiry’s’ website.

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