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APRA guidelines on SMSF loans a warning

Rachael Micallef  |  18 Jan 2013Text size  Decrease  Increase  |  

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Rachael Micallef is a journalist with InvestorDaily, a Sterling publication.


Advisers and accountants should be aware of the risks in lending to self-managed super funds (SMSFs), according to the Institute of Chartered Accountants (ICAA).

Following a letter by the Australian Prudential Regulation Authority (APRA) to authorised deposit-taking institutions (ADIs) on loans to SMSFs, ICAA have said that those working within the financial services industry also need to be aware of the potential risks.

"I think there are some clear messages in this that advisers, trustees and accountants need to be aware of," ICAA head of superannuation Liz Westover told InvestorDaily.

"There is a warning here that these types of loans are different, they have unique risks associated with them, and trustees need to be aware of those before they undertake these loans.

"Advisers and accountants need to recognise this and need to pass the message on to trustees. Those trustees need to give due consideration to what these unique characteristics are and to the associated risks."

APRA's "Letter to ADIs: Treatment of loans to self-managed super funds," classified loans to SMSFs that are secured by residential mortgages as "non-standard" due to the structures involved with the loans.

The guidelines noted that SMSF loans are more complex than those classified as "standard" eligible mortgages and involve no recourse rights to an SMSF's other assets.

APRA also said that SMSF loans require arrangements such as personal guarantees, but that evidence on the strength of pledging arrangements is insufficient.

ICAA have said that while the letter is not a cause of concern for the SMSF industry, it should be something that is given consideration when handling SMSF loans.

"I don't think this letter is any great issue for the SMSF industry," Westover said.

"The letter is for ADIs, about how they treat these loans. But it is worthwhile for advisers and accountants to be aware of what the regulator is saying."