“In light of the complexity, ongoing administration and unique risks, Westpac encourages the Inquiry to consider the introduction of appropriate additional regulatory requirements before an SMSF is able to be established,” the submission stated.

Westpac said the bank supports the requirement for a clearer test to be satisfied before the establishment of an SMSF can be recommended.

The test would require an adviser or accountant to be satisfied the benefits from the establishment of the SMSF clearly outweighed the risk and complexity relative to an APRA-regulated structure, Westpac said.

“Given the unique structure and risks attached to SMSFs, consideration should be given to higher qualification and accreditation requirements for advisers in this area.”

Westpac also said the current level of oversight and analysis of the systemic implications of the SMSF sector is insufficient, given the sector’s size and continuing growth rate.

“This poses important issues for the government and SMSF members, including risk of shortfalls in retirement savings due to poor management and/or mismanagement; calls to compensate SMSF members in the event of a failure; and poor understanding of the economic and financial system implications of the sector,” Westpac stated.

Westpac said this lack of oversight is “compounded” by the typically poor quality and depth of official data in relation to SMSFs.

The bank also acknowledged that there are systemic benefits to a large unleveraged superannuation savings pool, which can act as a stabiliser in times of economic stress.

However, Westpac stated it believes the current take-up of borrowing by SMSF’s is a “rational” response to the current policy and tax settings.

“Any change to the requirements surrounding leverage, like any others in superannuation, should operate on a prospective basis – consistent with the interim report’s policy option,” Westpac stated.

“Should the Inquiry decide not to remove direct leverage, we encourage the Inquiry to instead consider how appropriate caps – at an SMSF level – can be introduced to ensure leverage does not become a systemic risk.”