Accountants Certificate regime placing accountants at risk

Accountants who are not licensed to provide financial advice are being requested to certify the status of wholesale clients, placing the accountants themselves at significant personal risk, according to the SMSF Association.

Declaring that Accountants Certificates are no longer fit for purpose the SMSF Association has gone so far as to argue that the existing regulatory regime places presents accountants with conflicting obligations.

“We have also observed an emerging trend in the certificates being requested requiring the accountant to attest to information beyond the statement of fact required, placing accountants at significant, personal risk,” the SMSF Association told the Parliamentary Joint Committee inquiry into wholesale investor status.

“This was not the original policy intent of these provisions. This is an area of growing concern for our members, and we are receiving an increasing number of queries on the application of the regime to SMSFs.

“Some segments of the market appear to be placing an over reliance on the use of accountant’s certificates. We have also heard of circumstances where accountants have been approached, unsolicited, by non-clients, who have been referred to the accountant, seeking the completion of an accountant’s certificate,” it said.

“Issues also arise around the loss of capacity and requests for certificates for individuals subject to enduring power of attorneys.”

It said that in the context of SMSFs, a number of issues needed urgent remediation.

“Whilst the acquisition of a superannuation product will always be considered a retail client product or advice, the placement of investments and insurance products within the fund can be made as either a retail or wholesale client. However, the operation of the assets and income test for an SMSF are unclear.

“In the 2011 review, issues were raised on the application of the assets test for SMSFs, as no specific provisions are made. The question is whether the $10 million professional investor test for superannuation funds applied to SMSFs, rather than the $2.5 million asset test,” it said.

“This issue persists and remains unresolved. This legislative ambiguity means that no formal guidance has been issued by ASIC on the operation of the law in the context of SMSFs.”

“In 2014, ASIC issued a media statement stating that where the $2.5 million asset test is applied for an SMSF, no regulatory action would be taken. However, ASIC also warns that this ‘will not affect any private rights of action that may be available to third parties. Persons providing financial services to trustees of SMSFs need to make their own commercial decisions after considering the legal risks.’”

“We note that prior to this announcement, ASIC held the view that the $10 million asset test would apply in an SMSF context. Despite the 2014 media release, no formal guidance has ever been issued.”

“This gap in the legislative framework poses a significant risk to advisers, accountants, and their clients. We therefore ask that this Committee please carefully examine these issues and provide legislative certainty.”

“Greater clarity on how the asset and income tests are to apply to an SMSF would also be welcomed. While many funds will have a special purpose corporate trustee, some SMSFs still have two or more individual trustees. The application of the test differs, depending upon the SMSF trustee structure. The question remains whether it is appropriate to apply the tests at the trustee level or whether the tests should be based on the individual member’s interest in the fund.”