APRA rejects calls to regulate SMSF sector

The cost of prudentially regulating SMSFs would significantly outweigh any benefits, APRA has told the Financial System Inquiry.

Several submissions to the FSI have called for the SMSF sector to be regulated by APRA to mitigate the potential for systemic risk.

Recently, the Actuaries Institute suggested the option of having APRA as a regulator should be examined.

In its response to the FSI’s interim report, ARPA said the cost of prudentially regulating SMSFs would, by virtue of the number of SMSFs, be substantial and “significantly outweigh” any benefits gained.

The current arrangement, under which SMSFs are regulated by the ATO and fall outside the prudential perimeter, is therefore appropriate, APRA stated.

“While there is a strong case for the prudential regulation of those superannuation funds that are currently APRA-regulated, that does not extend to self-managed superannuation funds,” APRA stated.

“As the members of an SMSF are also its trustees (or directors of a company that is the trustee), the interests of members and trustees are naturally aligned.”

Chair of the government’s 2010 Super System Review, Jeremy Cooper, recently hit out at criticism of the ATO’s regulatory prowess.

Speaking to SMSF Adviser, Mr Cooper, chairman of retirement income at Challenger, said SMSFs “first and foremost” are a tax vehicle.

“They’re primarily tax rules that you’ve got to comply with in order to have that privilege, and it’s really the tax office that ought to administer that.

“To think that going back to APRA is somehow a solution is just not sensible,” Mr Cooper said. “I strongly disagree with that.”

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