International Law

Regulation of lending to super funds

By David Jacobson

Treasury has released an exposure draft of Corporations Regulations designed to give effect to the Government proposal to provide that certain borrowing arrangements by superannuation fund trustees permitted by the Superannuation Industry (Supervision) Act 1993 (the SIS Act) are financial products under the Corporations Act 2001 (Principal Act).

Existing Australian Financial Services licensees would need to review their licence authorisations to ensure they are authorised to provide or give advice on such products.

Generally, superannuation funds are not permitted to borrow funds except in limited circumstances. Superannuation funds are regulated under the SIS Act. Limited recourse borrowing arrangements, such as instalment warrants, are one of the exceptions permitted under the SIS Act, under subsection 67(4A).

The proposed Corporations Amendment Regulations 2010 (No.)(proposed Regulations) would make limited recourse borrowing arrangements financial products under the Principal Act when entered into by regulated superannuation funds.

The proposed Regulations amend the Corporations Regulations 2001 to provide that:

• limited recourse borrowing arrangements are financial products under the Principal Act when acquired by superannuation funds;
• limited recourse borrowing arrangements are not a credit facility under the Principal Act when acquired by superannuation funds; and
• an Australian Financial Services Licence covering derivatives is taken to also cover limited recourse borrowing arrangements.

Full post as published by Australian Regulatory Compliance Review on June 14, 2010 (boomark / email).