Private credit weighs developing industry standards ahead of ASIC regulation
The Financial Services Council has pledged to develop new industry standards as the corporate watchdog prepares to release its final findings into the $20bn private credit sector.
The growing private credit sector has committed to boosting disclosures as part of efforts to develop industry standards ahead of the corporate regulator delivering its final findings into how to manage the $20bn sector.
The Financial Services Council, a key body for the private credit sector, said it was looking to develop “industry standards”, committing to the move ahead of the corporate regulator releasing its final findings later this year.
The Australian Securities & Investments Commission is investigating how to approach the nearly $20bn private credit sector, running the ruler over industry practices in a wide-ranging review.
In its interim report published on Monday, ASIC warned it had observed significant poor behaviour in the retail investor end of the market, cautioning it had grounds to take legal action over poor operators already.
The poor conduct identified by the ASIC authors, former Commonwealth Bank banker Nigel Williams and financial analyst Richard Timbs, included poor disclosure of risks and valuations to investors, alongside conflicted remuneration in which investment managers benefited to the detriment of retail investors.
The FSC said the review highlighted issues of “opaque remuneration and fee structures, related party transactions, valuation practices and inconsistent disclosure terminology in some segments of the industry”.
FSC boss Blake Briggs said ASIC’s review was a “timely call for greater transparency in the sector”, noting the council and its members were in support of better governance. He said the peak body would work with its members alongside ASIC to develop standards for private credit.
These standards would “enhance governance and disclosure practices in private credit and private markets more broadly”.
“The FSC’s approach aims to build consumer trust and support the long-term growth and stability of Australia’s capital markets, ensuring private markets can continue to deliver strong outcomes for investors and the economy,” Mr Briggs said.
The move to develop standards could help the private credit sector avoid being hit with a major regulatory intervention.
ASIC will release a guidance document in November covering private credit.
Holding Redlich partner Andrew Stone said he was telling clients they had to improve their disclosures but noted the private credit sector was waiting for November. He said companies could expect requirements for “more robust information on valuations” and beefed-up rules on liquidity.
“You’ve got to have a robust design and distribution system that makes sure those products are only getting into the hands of people who are comfortable with that risk,” he said.
ASIC chairman Joe Longo said the sector now had to deliver “enhanced standards”.
“They will help promote confidence, improve market integrity and empower investors to make informed decisions,” he said.
Metrics Credit Partners, a key player in the sector, said ASIC’s report strongly signalled the need for enhanced industry standards.
The private lender, with $30bn in assets, said it was important for investors to “have confidence in the Australian private credit industry”. A spokesman said Metrics had put in place its own standards.
“To that end at Metrics, we have strict governance standards in place including an independent trustee, detailed quarterly transparency reports for investors, monthly independent valuations and impairment testing, and multiple layers of third-party oversight to manage potential conflicts of interest,” he said.
The Australian Investment Council pointed to ASIC’s findings showing there were practices in the private credit sector that were failing some investors.
AIC chief executive Navleen Prasad said it was time to reflect on practices in private credit “that are not in service of investors or the market as a whole”. She said there was a need to “ensure there are clear guardrails that strike the balance between investor protection, market confidence and fostering growth”.
But Ms Prasad noted the review had found funds targeted at institutional investors “already adhere to good practices”.
The AIC represents private equity investment operators.
Ms Prasad said ASIC’s report “provides that much-needed next level of clarity about where ASIC sees a need for improvement”.
But Australian Finance Industry Association boss Diane Tate said any regulatory intervention in private credit had to be careful about how it approached non-bank lenders. Ms Tate, who represents non-bank lenders, said they provided “vital credit to consumers and small businesses, often operating like banks but raising capital from markets rather than deposits”.
“Lumping them in with private credit funds risks obscuring their unique role in Australia’s lending ecosystem,” she said.
“If policy intervention is considered, it should be grounded in clear principles: proportionate, scalable, functions-based and tech-neutral.”
Ms Tate said any regulation should protect consumers but also avoid “unnecessary burdens on capital markets that could restrict investment, stifle innovation and reduce competition in the financial system”.
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