Industry divided on LRBA regulations

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Treasury’s amendment to make Limited Recourse Borrowing Arrangements (LRBAs) a financial product has been met with negative feedback from CPA Australia.

The proposed changes received 18 submissions last year, including ASFA, the ABA, SPAA and CPA.

In a submission to Treasury, CPA Australia said the changes would not ensure adequate customer protection, as intended.

“If these arrangements are regulated as a financial product, professional accountants would no longer be able to provide this guidance and in effect, consumers’ access to trusted, qualified advice would be severely diminished,” said CPA head of business and investment policy Paul Drum in the submission.

SPAA has recently spoken up about SMSFs using an LRBA, and said it supported the changes to make the borrowing arrangements a designated financial product.

“If this change can be implemented, it will mean that only professionals licensed to provide financial advice can advise on limited recourse borrowing arrangements, and they will be required to consider a client’s complete financial circumstances, not just those that relate to the borrowing arrangement in isolation,” said SPAA education and professional standards director Graeme Colley to Professional Planner.

ASFA also had positive feedback on the proposal, but said it was over complicated and excessively focused on instalment warrants.

Their submission said the proposed licensing requirements for a derivative or securities license failed to recognise that LRBAs increasingly involved a number of assets, in particular property.

Financial planner Paul Levy hoped the changes would provide more regulation for the real estate industry in general, which he said is not regulated as strenuously as the financial planning industry.

“When someone wants to buy a property, the real estate agent does not explore: who should own the asset, what structure should we use, should we look at your increased insurance needs once you increase your loan, should payments be monthly or fortnightly, should we look at your Estate Planning needs etc.,” he said.

“I would hope that if LRBAs become a financial product then property in general should become more regulated.”

Wealth Professional asked Treasury if there had been any developments on the changes or when we could expect to see these, but has not yet received a response. CPA Australia has also been asked if the limited AFSL has changed their stance on the issue.