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Proposal to require license to deal in, or give advice on, SMSF borrowing arrangements as “financial products”

The government has proposed that limited recourse borrowing arrangements — for SMSF borrowing — be classified as 'financial products' under the Corporations Act 2001. This would require anyone in a 'financial services business' who deals in, or advises on, (or who does both for) SMSF borrowing arrangements to hold an Australian financial services licence.

Nicole Siemensma

What are these draft amendments?

The draft Corporations Amendment Regulations 2010 would amend the Corporations Regulations 2001 so that a limited recourse borrowing arrangement to enable a superannuation fund — including Self-Managed Superannuation Funds (SMSF) — to acquire an asset:

  • is a “financial product” under the Corporations Act 2001; and
  • is not a “credit facility” under the Corporations Act 2001.

It is important to note that these amendments are only in draft form and have not yet been legislated.

If the changes become law, then anyone in a 'financial services business' who deals in, or advises on, SMSF borrowing arrangements would need to hold an Australian Financial Services Licence (AFSL). However, anyone holding an ASFL that covers derivatives would be taken to also be licensed in relation to limited recourse borrowing arrangements for SMSF borrowing[1].

What is not yet clear is:

  • whether any exemptions will apply; and
  • whether and how any exemptions may deal with someone who is a related party of an SMSF and lends money to that SMSF.

What is the current law?

Limited recourse borrowing arrangements[2] for SMSF borrowing are not considered financial products under the current Corporations Regulations 2010.

This means that anyone carrying on a business of dealing in, or advising about, limited recourse borrowing arrangements is not required to have an Australian Financial Services Licence (AFSL).

To 'deal' in a limited recourse borrowing arrangements means to:

  • apply for or acquire a limited recourse borrowing arrangement;
  • to issue a limited recourse borrowing arrangement;
  • to vary a limited recourse borrowing arrangement; or
  • to dispose of a limited recourse borrowing arrangement [3].

What are the main legal obligations of persons who deal in financial products?

A person who carries on a business of dealing in financial products must meet obligations which include:

  • holding an AFSL[4];
  • providing a product disclosure statement about the financial product, to persons to whom it issues a financial product[5]; and
  • providing statements of advice to clients to whom they give personal advice about financial products[6] .

How will the draft amendments affect Cleardocs customers for SMSF borrowing documents?

Currently, Cleardocs offers document packages to set up a limited recourse borrowing arrangement, including a declaration of custody trust, trustee minutes, compliance letter and a loan agreement if the lender is a related party.

The developments in the law will be monitored to assess their impact on this product.

What are the next steps?

The Corporations Regulations Amendments 2010 were published as an Exposure Draft. Submissions were due by 25 June 2010. Parliament is still reviewing all submissions received and has not yet made an announcement as to whether the Exposure Draft will be legislated as drafted, or varied based on the submissions.

The Federal election is likely to delay any action.

Will the AFSL licensing arrangements change?

If the new category of financial product is introduced for limited recourse borrowing arrangements, then AFSL holders may need to seek ASIC authorisation to advise on, or deal in that category.

However, one piece of good news is that someone who already holds an AFSL for arrangements relating to derivatives can also deal in limited recourse borrowing arrangements, without the need to apply for a new authorisation on their AFSL.  

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask for a member of the Maddocks General Commercial Team.

More Cleardocs information on superannuation issues –


You can access various ClearLaw articles for more relevant information relating to superannuation issues:

Order Cleardocs superannuation products

Download checklist

Download a checklist of the information you need to order a document package.

[1] See publication on Treasure website at:

[2] Allowed under subsection 67(4A) of the Superannuation Industry (Supervision) Act 1993

[3] Section 766C(1) of the Corporations Act 2001 refers to dealing in financial products.

[4] Section 911A(1) of the Corporations Act 2001.

[5] Division 2, Part 7.9 of the Corporations Act 2001.

[6] Part 7.7 of the Corporations Act 2001.


Lawyer in Profile

Andrew Wright
Andrew Wright
+61 3 9258 3362

Qualifications: LLB (Hons), BCom, University of Melbourne

Andrew is a Partner in Maddocks Tax and Structuring team. He has significant experience in advising Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.

Andrew regularly provides advice on:

  • structuring of businesses and transactions,
  • mergers and acquisitions,
  • sale of businesses,
  • corporate reorganisations,
  • fixed and discretionary trust deeds, and
  • international tax structuring.

His advice covers both direct and indirect tax considerations.

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