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LRBA, Superannuation

LRBAs not creating systemic risk

An ATO report has found LRBAs are not creating systemic risks in the financial system.

Limited recourse borrowing arrangements (LRBA) within SMSFs are unlikely to pose a substantial risk to the superannuation system according to report released by the ATO and Council of Financial Regulators (CFR).

The report, issued by the federal government today, found LRBAs accounted for only 5.2 per cent of total SMSF assets and 8.9 per cent of funds had an LRBA stating, “Given this magnitude, LRBAs are unlikely to pose systemic risk to the financial system at this time”.

The government announced the release of the report via a joint media statement from Treasurer Josh Frydenberg and Assistant Minister Stuart Robert who said the Government would take no further action at present but would continue to review the use of LRBAs,

“In light of this, the Coalition Government will not be making any changes to LRBAs and will instead request that the CFR and the ATO continue to monitor LRBAs in the superannuation system and report back again in three years.”

“This is consistent with the Productivity Commission’s recent report on superannuation which also found that LRBAs do not ‘currently pose a material systemic risk’, but that ‘active monitoring is warranted to ensure that SMSF borrowing does not have the potential to generate systemic risks in the future’.”

The statement noted the report was part of the Government’s response to the Financial System Inquiry (FSI) and was designed to gather data to inform any decision making around changes to borrowing arrangements by superannuation funds.

The report highlighted that the FSI had recommended prohibiting the use of LRBAs to prevent the build-up of risk in the in the superannuation system and the financial system but the Government did not agree with this recommendation and commissioned the CFR and ATO to monitor leverage and risk in the superannuation system and report back to Government.

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