Unanswered questions lingering over LRBAs, says Macquarie

Various issues with borrowing in superannuation remain unresolved outside the current concerns stemming from the Reserve Bank, according to a Macquarie Bank executive.

In recent weeks, calls for borrowing in super to become further constrained have intensified in light of concerns about the heated Australian property market that continue to be raised by the Reserve Bank.

Assistant governor Malcolm Edey told the federal government’s Inquiry into Affordable Housing last week there was growing concern about increasing speculative activity and growing investor borrowing.

However, the future of borrowing in SMSFs is likely to remain in the hands of the Financial System Inquiry, Macquarie Bank’s executive director David Shirlow told SMSF Adviser. 

“In a way, there’s a bunch of issues on borrowing that are bubbling along quite independently of anything the RBA might be concerned about,” Mr Shirlow said.

Mr Shirlow noted that the 2010 Cooper Review recommended introducing further consumer protection measures in relation to borrowing in superannuation, which has been left untouched for “quite some time”.

“There’s a big question mark over where the government’s at in terms of whether it wants to introduce those sorts of consumer protections,” he said.

Mr Shirlow also said the Cooper Review recommended an introduction of Corporations Act rules to require certain licensing standards for those providing advice on LRBAs and related products.

“Your next question might be what’s a limited recourse borrowing product? Is it the loan or is it the investment? And that’s where it all started to come unstuck, because there was some real difficulty in defining what the product is and who’s the product issuer.”

Mr Shirlow has previously suggested changes to SMSF borrowing are on the cards following the Financial System Inquiry.

“Murray gives us a strong indication that the whole thing is on the table. When you get to borrowing in super [in the FSI’s interim report] the tone changes. It’s quite assertive. I think it’s quite clear that the Murray Inquiry could well recommend a complete ban on borrowing,” Mr Shirlow said.

“If the Murray Inquiry does take a firm line on borrowing, then the government could either adopt that firm line or, at the very least, I’d suggest we’re looking at some really significant constraints to address those sorts of concerns.”

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