What is the SIS Act, and how does it impact the management of super funds?

The SIS Act defines the duties and obligations of super fund trustees through statutory guarantees in section 52. Trustees must act honestly, diligently, and invest according to a properly formulated investment strategy. Section 55 of the Act mentions that members who feel that they have suffered loss or damage because trustees have not complied with this provision can take action to recover their money.

There are specific requirements expected from trustees that are laid out in the SIS Act for them to follow, including:

• Section 62 states that trustees must ensure that the fund’s sole purpose is to provide old-age pensions or funds for retirement. The core purpose of a Self-Managed Super Funds (SMSF) must be to pay benefits when members retire, have reached a prescribed age, or on a member’s death. If any member or trustee benefits from an investment before these conditions have been fulfilled, the fund has breached the sole purpose test of the SIS Act. 
• Section 65 of the SIS Act prohibits the trustee of a regulated superannuation fund from lending money in the form of a loan to fund members (or their relatives) using the fund’s resources. S 67 of the SIS Act prohibits a trustee of a regulated superannuation fund from borrowing money from the fund.
• Section 117 of the Act prohibits trustees from paying employers out of the fund.
• Section 109 requires that investments must be made while dealing with the other party at an arm's length, meaning that they must not extend terms to one person that may be seen as more favourable than the terms offered to others. All dealings should be on a commercial basis, with terms and conditions similar to those agreed to after real bargaining. The deal should be struck in the same way that objective and wise people operating in their own interests would have made.
• Part 8 of the SIS Act specifies who is defined as an associate of a member of an SMSF or a standard employer/sponsor. The SMSF is prohibited from acquiring assets belonging to these Part 8 associates. Other dealings with associates also need to carefully consider the Act’s provisions.
• Section 106 of the SIS Act specifies that if a trustee becomes aware of an event that will have a significant negative effect on the fund’s financial position, the trustee must immediately notify APRA in writing. 

Contravention of the above specific requirements may attract fines of up to $220,000.

In addition to these, the Act also states that if trustees fail to appoint an auditor, they could face up to 2 years in jail.

Section 36 of the SIS Act makes it mandatory for trustees to submit annual SIS returns, and non-compliance may attract a fine of up to $5,500.

Other responsibilities of the trustees of super funds include - adherence to equal representation rules, and operating standards, dealing with member complaints, and maintaining records from investment managers. Failure to comply with these requirements can attract fines of up to $11,000.

If you want further explanation of the SIS Act you should discuss this with a financial or legal specialist in this area.