SMSF limited recourse borrowing changes welcome
Specialist self-managed superannuation funds (SMSF) company Cavendish Superannuation has welcomed the Government's announcement that it intends amending corporations law to make limited recourse borrowing a financial product.
In a bulletin issued last week, Cavendish said the move by the Government would give heart to those supporting limited recourse borrowing in the context of SMSFs.
It said the Government intended to change the corporations law to make limited recourse borrowing arrangements a financial product - something which had been flagged back in March 2012, and which had been a long time coming.
It said the exposure draft of the intended legislation represented an improvement on that first released in June 2010.
"Essentially, this legislation will have the effect of bringing consumers under the protective mechanisms that apply to financial products," the Cavendish analysis said.
"This will require limited recourse borrowing dealers and their associated financial advisers to hold a relevant financial services licence and provide a product disclosure statement and statement of advice to clients."
Cavendish head of education David Busoli predicted there would be considerable debate concerning which parties within a limited recourse borrowing arrangement must be licensed, given the number involved.
"The 'issuer' requires licensing and is defined as a person who enters into a legal relationship that sets up the arrangement and includes each party to the arrangement," he said.
Busoli said the previous draft of the legislation had caused some confusion about the type of authority a licensee required, but the latest draft states that an Australian Financial Services Licence that provides a licensee with the authority to financially advise on derivatives or on securities is taken to also cover limited recourse borrowing arrangements.
He said the draft also confirmed that a limited recourse borrowing arrangement is not a credit facility, so entities that merely provide finance are not caught by the new requirements.
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