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New ASIC report a ‘prudent warning’ to SMSFs

Miranda Brownlee
23 June 2016 — 2 minute read

An ASIC report detailing "serious and widespread" compliance failures in the OTC derivatives should act as a warning for SMSFs, as trustees continue to find themselves in hot water by circumventing their professional advice.

In its report, 482 Compliance review of the OTC derivatives sector, ASIC found that 80 per cent of the entities operating retail derivatives financial services businesses in Australia had demonstrated issues with disclosure in their PDS or website.

It also found that over 50 per cent had not adequately complied with their financial reporting obligations.


"Many of the compliance concerns we detected were contraventions of well-established regulatory requirements or non-compliance with fundamental AFS licensing obligations," said the corporate regulator.

Holley Nethercote partner Paul Derham said while most SMSF practitioners avoid recommending OTC derivatives as an asset class because of the associated risks, SMSF trustees sometimes become involved with OTC derivatives directly.

Mr Derham said some trustees form the view they can increase their retirement savings through OTC derivatives trading after attending seminars.

The biggest issue, he said, is investors and SMSF trustees understanding the risks themselves.

"ASIC has done a massive surveillance across the industry of the product issuers, who are these people offering these platforms, and so ASIC is trying to raise the standards as it does when it issues most types of these reports," Mr Derham told SMSF Adviser.

"This will have a flow-on effect because one of the criticisms ASIC made was that some providers has misleading statements on their websites from PDSs including how much money you might be able to make, etc."

In its statement, ASIC described retail OTC derivatives as "complex, high-risk products which are often difficult to understand, even for experienced investors".

"The report also provides a prudent warning to investors. We hope the report will encourage them to be more aware of the risks of these types of products as well as improve their understanding of the standards of practice they should expect from retail OTC derivative providers," said ASIC.

BDO superannuation partner Shirley Schaeffer said there are not a lot of derivatives in the SMSF space currently, but they do tend to go through phases of popularity.

"Certainly if there are organisations ‘pushing’ the sale of these types of products, ie, buying and selling options or CFDs or running courses about how to make money quick, we see some uptake," she told SMSF Adviser.

"It usually dies off when the trustees recognise that making money in this market space is hard and requires a constant ‘watching’ of the market."

Super Auditor’s director Shelley Banton said investing in these types of assets will always mean "accepting higher risk with no guarantee of return".

Ms Banton warned that with the low interest rate environment, trustees may be looking at accepting more risk in their portfolios in order to increase return on investments.

"ASIC has now identified these investments are even riskier for those investors as a result of their report," she told SMSF Adviser.

Read more:

Trustees urged to consider key strategy for LRBAs

ATO extends looming compliance deadline

BetaShares launches new ETF


Miranda Brownlee

Miranda Brownlee


Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years. 

Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: This email address is being protected from spambots. You need JavaScript enabled to view it.

New ASIC report a ‘prudent warning’ to SMSFs
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