“The general lack of leverage in the superannuation system is a major strength of the financial system. Although direct leverage in superannuation is small, the current ability to borrow directly may, over time, erode this strength and create new risks to the financial system,” the report stated.

Speaking to SMSF Adviser, the SMSF Professionals’ Association of Australia’s Jordan George explained the policy option the FSI is exploring would mean diverting to the pre-2007 position, when limited recourse borrowing arrangements in SMSFs were not allowed.

Mr George noted that the chair of the FSI, former CBA boss David Murray, acknowledged some of the options put forward in the interim report were “quite radical in their nature.”

“Reversing the current position on super fund borrowing is one of those that you would say is quite a significant change,” Mr George said.

“They need information, they need people to provide them with the facts, and their views on how it’s functioning in the sector, and that’s what SPAA’s role in this review will be,” he added.

However, Mr George suggested making LRBAs a licensed financial product would reduce any potential risk the arrangements pose to the sector.

“That would limit the advice on LRBAs to be only given by a licensed financial advisers, because we think the real risk that is around LRBAs is in the spruiking of them to people who [possibly shouldn’t] be in the position to use them,” Mr George said.

“There are some issues that we know of in the fringes of the sector, where LRBAs are being promoted inappropriately, and we believe that making them a licensed financial product would give the regulators more teeth to tackle the problem.”