SMSFs are meant to be excluded from the banking Royal Commission, but there are three ways they could still be dragged in according to the chair of the SMSF Association.
The Prime Minister, when announcing the banking Royal Commission, said it would “consider the conduct of banks, insurers, financial services providers and superannuation funds (not including self-managed superannuation funds)”.
The terms of reference require the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry to inquiry into: “whether the use by financial services entities of superannuation members’ retirement savings, for any purpose, does not meet community standards and expectations or is otherwise not in the best interests of those members”.
However, according to Andrew Gale, outgoing chair of the SMSF Association, SMSFs could still be included in the work of the Commission via three avenues.
“Although the SMSF sector is explicitly excluded, history tells us Royal Commissions can go in unexpected directions,” he told the SMSF Association National Conference.
Firstly the Royal Commission is inquiring into the conduct of Australian Financial Services Licensees, and this cold include advice around SMSFs.
“Secondly, with large superannuation funds included in the terms of reference and under scrutiny, we expect the large fund sector, especially industry funds, to seek to deflect attention by pointing out issues with SMSFs,” said Mr Gale. This could include minimum reasonable balances for SMSFs and Limited Recourse Borrowing Arrangements (LRBAs).
Thirdly he says there is a “small possibility” that the terms of reference are expanded to include SMSFs.
“On a positive note, it’s worth noting that prior enquiries into superannuation have found the SMSF sector to be functionally well with a high level of compliance,” he said.