The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry could implicate self-managed super funds in three different ways, despite the funds being excluded from the terms of reference, the SMSF Association warns.

While there is no explicit reference to SMSFs in initial documents outlining the inquiry, history has shown the scope can be broadened as the commission begins its discovery, outgoing chair Andrew Gale said.

The first way SMSFs could be drawn in would be via the commission’s investigation of Australian Financial Services licensees, which could include looking at advice to set up SMSFs or other recommendations around the funds, he said.

“The advice and conduct issues of Australian Financial Services licensees are included specifically in the terms of reference,” Gale said.

The second way SMSFs could be implicated would be if industry funds drew attention to the SMSF sector, he added.

“With large superannuation funds included in the terms of reference and under scrutiny, we expect the large-fund sector, especially industry funds, to seek to deflect attention by pointing out issues with SMSFs,” Gale said.

Some of the issues larger funds could draw attention to include minimum balances in SMSFs and limited recourse borrowing arrangements, which have both been controversial in the past. David Murray recommended in his Financial System Inquiry report that the arrangements be banned.

“Finally, there is a small possibility that the terms of reference of the royal commission will be expanded to include SMSFs or related fields,” Gale said.

The royal commission’s first hearing was on Monday (February 12). Commissioner Kenneth Hayne noted the banks might not return all of the information required, given the tight deadline.

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