11/03/2010

The Financial Services Minister (also Mr Chris Bowen) has announced that certain borrowing arrangements made by super fund trustees permitted by the SIS Act are to be deemed to be a financial product.

It is unclear from the announcement whether super gearing arrangements involving real estate are to be deemed as financial products.  If so, this is a very significant change.  Also it will raise some very interesting consequential issues: such as which party is to issue a product disclosure statement in relation to the transaction?  The Lender? the Security Trustee? or the Super Fund?   If there is to be a PDS issued then it may be the Security Trustee who issues the PDS, as the Lender is merely providing a loan and the Super Fund can hardly issue a PDS to itself.

Essentially, deeming real estate instalment warrants as financial assets means that only licensed advisers can recommend such investments. 

This change will be implemented by amendment to the Corporations Regulations and will be effective 3 months after the amendment regulations have been made.

If the change does cover real estate super gearing arrangements, then advisers who are not licensed will have only three months (from the date the amendment is made) in which to advise and assist their clients in respect of such arrangements.

What is missing from the Proposals Paper?

A significant omission from the Proposals Paper is the question of refinancing of an existing instalment warrant arrangement.  This is a particular issue for real estate instalment warrants.

There is simply no policy reason not to permit refinancing of otherwise acceptable instalment arrangements.  For non-real estate instalment warrants this can be done by means of “rolling over” the instalment warrant.

For real estate instalment warrants, refinancing should be expressly permitted.

SUPERCentral’s lawyers, will be strongly arguing this point in its submission on instalment warrants.