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Regulation, Superannuation

AML rules may exacerbate SFLU problems

AML SFLU SMSFs

SMSFs removed from the Super Fund Lookup (SFLU) may be caught under anti-money laundering (AML) laws impacting the flow of money in and out of the fund.

SMSFs removed from the ATO’s Super Fund Lookup (SFLU) may also be caught under anti-money laundering (AML) laws which may impact the flow of investment monies in and out of the fund, according to an SMSF technical expert.

SuperConcepts SMSF technical specialist Anthony Cullen said while the implications of the ATO’s plans to remove complying status on the SFLU for SMSFs that had outstanding annual returns were widely understood, there were also more severe consequences for some funds.

“Most people grasped the impact of such a measure fairly quickly. Any attempts to roll benefits over from an APRA (Australian Prudential Regulation Authority) fund to an SMSF will be hampered by the fact the APRA fund cannot confirm the complying status of the SMSF,” Cullen said in a blog post on the SuperConcepts website, adding the shift to non-complying status would also cause employer contributions via SuperStream to cease.

Cullen noted, however, the AML laws could amplify the consequences of a fund losing its complying status on SFLU and restrict funds moving out of SMSFs as well.

This would occur as under AML laws financial service providers are required to conduct identification checks for investors, and in the case of an SMSF would confirm its status via the SFLU.

“Where a fund has its status removed you can expect, in some circumstances, they will be prohibited from investing in certain assets due to the policies of the provider,” Cullen said, noting this issue could flow into existing investments as well.

He gave an example of an SMSF that had changed its trustee structure from that of individuals to a corporate trustee and was required to change the holding name on all of the fund’s investments to reflect the new trustee structure.

“The bank is contacted with the relevant details and, as part of their internal policies, they check SFLU to find the regulation status has been removed. Next thing you know, there is a possibility that the bank account will be frozen,” he said.

“Even in circumstances where the SuperStream gateway has been avoided, there is still no guarantee that a contribution will make its way into the bank account if the provider has placed their own block on it.”

SMSFs can avoid having their complying status removed by lodging on time, but ATO records show only 85 per cent to 90 per cent of funds do so and “on these figures alone, that’s approximately 60,000 to 90,000 SMSFs that could be lodging late”, he pointed out.

He added late-lodging funds should not expect their status to be restored immediately due to software systems not being fully integrated at this stage and questioned if this was a side effect of the new rule or a plan to increase on-time lodgements.

“In time, one would hope that this reinstatement will occur as efficiently and as automatically as the removal of the status. In the meantime, it may pay to monitor SFLU after the lodgement of all outstanding returns,” he said.

“Are these just unintended consequences on the clamping down on late lodgers? Or, were these expected and the stick to encourage on-time lodgements is just much bigger than we first thought?”

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