APRA buys into SMSF lending policy via banks
The Australian Prudential Regulation Authority (APRA) has brought into the debate around lending within self-managed superannuation funds (SMSFs) via its role as a banking regulator and by stipulating how lending institutions should treat loans to SMSFs.
In a letter to all Australian incorporated Authorised Deposit-taking Institutions (ADIs) yesterday, the APRA's executive general manager, policy, research and statistics Charles Littrell said the regulator was seeking to clarify the appropriate capital treatment of ADIs' loans to SMSFs that are secured by residential mortgages.
In doing so it said it wanted to clarify that SMSF loans were to be treated as 'non-standard' eligible mortgages, and then explained its thinking by saying that the structures involved in SMSF loans were relatively more complex than those for standard eligible mortgages and involved no recourse rights to an SMSF's other assets.
As well, the APRA letter warned that the structure of the loans also required more complex arrangements such as personal guarantees, "with insufficient empirical evidence as yet on the relative strength of the pledging arrangement or the ultimate enforceability of the personal guarantees in comparison to more traditional arrangements".
It said that, as such, "SMSF loans may have a different and potentially higher loss profile in comparison to standard loans".
The APRA letter also said the regulator wanted to emphasise that where a lending institution was extending credit to SMSFs, it was the institution's responsibility to ensure it had given detailed consideration "to the particular risks of lending to a superannuation fund, and that its application process verifies all relevant compliance matters that might impact on the ability of an SMSF to service the loan".
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