The law which applies is Regulation 13.14 of the Superannuation Industry (Supervision) Regulations 1994 which (subject to exceptions which do not apply) sets an "operating standard" that the trustee of an SMSF must "not give a charge over, or in relation to, an asset of the fund". In Regulation 13.11 a charge is widely defined as "including a mortgage, lien or other encumbrance".
By section 34(1) of the Superannuation Industry (Supervision) Act 1993 an "operating standard" must be complied with. Rather alarmingly, if a trustee intentionally or recklessly fails to ensure that an operating standard is complied with, this is a criminal offence. In almost every case however, a breach of the regulation arising from a stockbroker's charge clause will be accidental, since such clauses are buried in a mass of fine print. In such circumstances no offence will be committed.
And in practice the ATO is likely to give the fund a chance to correct the problem before issuing a notice of non-compliance.
Since I started this page, online stockbrokers have become much better aware of the problem for SMSFs arising from a charge or pledge of the fund's assets and there has been a real improvement in the fine print. However I would still advise my clients to check their stockbroker's terms carefully for an offending clause of this type.
Since I want to keep a close eye on these matters I am happy to look at your own terms for you at no charge and on an "at your own risk" basis. You can just send the terms to me by email at or by mail at PO Box 354 Corinda QLD 4075. If I am overwhelmed I will have to withdraw this offer!
Such a proviso clause might read:-
"To the extent that any provision in this agreement is in breach of regulation 13.14 of the Superannuation Industry (Supervision) Regulations 1994, that provision shall not apply between the parties to this agreement."
|Broker||Situation on the date given below|
|ANZ Share Investing||Clauses 7.2 and 7.3 automatically pledge money provided by the fund in the Settlement Account to pay for trades. This would mean that such money is, for the short time between an order and settlement of that order, charged with the payment of the order. Whether this entirely unnecessary provision would breach Reg 13.14 would seem to depend on exactly how this operates in practice. For example it might turn on whether it can be argued that once the order is made by the fund, the fund ceases to own the settlement monies it has placed with the broker (normally this would not be the case however). [26 January 2017]|
|Bell Direct||Lien applied (in clause 3.11). Bell Direct have agreed that the above proviso clause can be inserted on request. [22 October 2013]|
|Commsec||No charge clause when I looked recently (you will need to check that this has not changed). [10 January 2016]|
|CMC Markets||No charge clause in the March 2014 version of the terms and conditions (you will need to check that this has not changed). [2 June 2015]|
|DirectShares (St George)||These terms contain a pledge in the same terms as ANZ Share Investing (see above). [26 January 2017]|
|Ebroking (CMC Markets)||No charge clause when I looked recently (you will need to check that this has not changed). [22 October 2013]|
closed: see ANZ Share Investing
|The previous lien which was applied in clause 12.6 of the terms and conditions has now disappeared. Instead there is a contractual right to set-off in clause 11.3 which is not automatic and therefore is not of the nature of a charge. So these terms now get the go ahead, but of course you will need to check that this has not changed. [22 October 2013]|
|IG Markets||In the Share Trading Agreement of June 2016, clause 15(8) the broker has a power to sell the fund's investments which it holds (which is a feature of a charge), and in clause 15(9) the broker has a power to retain possession of the fund's investments which it holds. This is described in the clause as a "lien". Although under these clauses, these powers may only be exercised where the fund is indebted to the broker, the problem is that in agreeing these terms an immediate charge is created (it does not depend on another step by the broker). Also it is clear that the broker intends these powers to be security interests over the fund's investments which it holds - clause 12(11) expressly says so. I recommend a side letter or proviso be agreed. This should clearly state that it overrides the "entire agreement" clause in 18(2) and will survive any amendment to the terms notwithstanding clause 25(2). [12 February 2017]|
|Interactive Brokers||Clause 14 of the Australian General Terms and Conditions create a charge. A side letter or proviso is advisable. [11 July 2020]|
|Macquerie Prime||In Clause 2.1 of the General Conditions there is a contractual right to use the fund's money in the prime account to pay a debt owed to Macquarie or one of the other contracting parties. This would not normally be a problem. However Clauses 2.5 and 9(s) describe this right as a "security interest". A side letter or proviso is advisable. [22 October 2013]|
|NAB Trade||From February 2013 NAB added a proviso clause in clause 2.1(b) of the broking terms and conditions, so these terms get the go ahead (you will need to check that this has not changed). [22 October 2013]|
|OpenMarkets||Clause 11.25 in the June 2015 conditions refers to "collateral" lodged with the broker by the client, which can be disposed of by the broker. This is probably a reference to security provided under clause 11.4, which permits the broker to call for security from the client and which the client is obliged to give. Apart from these provisions the conditions do not attempt to charge any funds owned by the fund. A fund should refuse to provide any security if asked to do so under clause 11.4.|
|PhillipCapital Australia||The 7 March 2016 terms and conditions of trading in equities on the Australian share market can be given the go ahead, but these are not currently downloadable from the website (you have to request them specifically). The broker says that you will be given the terms and conditions on joining up, which is not a good idea! You will need to be careful that no additional terms and conditions are applied. [26 January 2017]|
|Saxo Capital Markets||Saxo have introduced a special application form called the "SMSF Account Application Form" which, together with recent amendments to the General Business Terms, have addressed previous charge clause problems for SMSFs. Make sure you use the correct application form and it is wise to continue to check the fine print. [22 October 2013]|
|SelfWealth||SelfWealth Trading terms and conditions are careful to avoid a charge in the case of superannuation funds and so these terms get the go ahead (you will need to check that this has not changed). [23 July 2016]|
|Westpac Securities||From 11 July 2013, Westpac added my proviso clause to clause 7.9 of the terms and conditions for online trading, so these terms get the go ahead (you will need to check that this has not changed). [22 October 2013]|
|Institutions providing forex trading|
|Go Markets||There is a contractual right to use deposited monies which is probably not a problem. However a side letter or proviso is advisable. [22 October 2013]|
|Pepperstone||There is a contractual right to use deposited monies which is probably not a problem. However a side letter or proviso is advisable. [22 October 2013]|
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