House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Minister for Financial Services, Superannuation and Corporate Law, the Hon Chris Bowen MP

General outline and financial impact

Superannuation fund investment in certain limited recourse borrowing arrangements

Section 67 of the Superannuation Industry (Supervision) Act 1993 ( the Act) prohibits trustees of regulated superannuation funds from borrowing money or maintaining a borrowing of money subject to specific exceptions. One exception, introduced in 2007, permits superannuation fund trustees to borrow money on a limited recourse basis, provided certain conditions are met, to acquire any asset a fund is not prohibited from acquiring directly.

Since these amendments, market developments have led to practices that raise prudential concerns with the use of such limited recourse borrowing arrangements by superannuation funds.

Schedule 1 of this Bill amends the Act with the purpose of reducing the risks for superannuation funds investing in limited recourse borrowing arrangements. Schedule 1 also amends the Act to resolve uncertainty with the application of the borrowing exemption in light of concerns raised in consultations on the Bill.

Date of effect: The Bill will formally commence on the date of Royal Assent.

Proposal announced: The Bill will be announced in conjunction with its introduction to Parliament.

Financial impact: Nil

Compliance cost impact: These amendments are expected to result in a slight increase in compliance costs for the finance sector. The Office of Best Practice Regulation granted an exemption from having to provide a Regulation Impact Statement.