Westpac sees SMSF borrowing as rational, but seeks to avoid systemic risk prospect
Westpac has called for the introduction of additional regulatory requirements before any SMSF can be established, in its response to the Financial System Inquiry’s interim report.
The bank says "suitability" remained the most important policy consideration in light of the complexity, ongoing administration and unique risks.
Westpac propose a test requiring an adviser or accountant to be satisfied the benefits from the establishment of the SMSF clearly outweigh the risk.
Westpac suggested the current take-up of borrowing by SMSFs has been a “rational” response to the current policy and tax settings, but has encouraged the inquiry to possibly consider how appropriate caps could ensure leverage does not become a systemic risk.
It also said the current level of official data, and oversight and analysis of the systemic implications of the SMSF sector were insufficient, given the sector’s size and continuing growth rate.
“This poses important issues for the government and SMSF members, including risk of shortfalls in retirement savings due to poor management and/ or mismanagement; calls to compensate SMSF members in the event of a failure; and poor understanding of the economic and financial system implications of the sector,” Westpac stated.
