Australia: ASIC’s REP 820: Raising the Bar for Australia’s Private Credit Market

By: Matthew Watts and Michelle Huo

Australia’s private credit market has experienced remarkable growth in recent years, with some estimates valuing it at approximately $200 billion.

This expansion has been driven by a surge in private loan investments and growing interest from both retail and wholesale investors. As a result, the market has attracted heightened scrutiny and surveillance from the Australian Securities and Investments Commission (ASIC).

Findings from ASIC’s Review

ASIC has published its findings from this surveillance in Report 820 Private credit surveillance: retail and wholesale funds (REP 820). ASIC acknowledges private credit enhances financial market efficiency and economic growth by supplying capital in areas where traditional bank lending may be constrained. However, ASIC has indicated there are some areas where improvement is needed – and in some cases, materially so.

In compiling REP 820, ASIC undertook a review of 28 private credit funds, across both retail and wholesale, and found that while some funds are setting high standards, a number fell short, particularly in areas such as disclosure, fee transparency, and conflict management. According to ASIC, these shortcomings make it difficult for investors to compare options and fully understand the risks and costs associated with private credit products. ASIC noted that some of the poorer practices identified were inconsistent with ASIC guidance and potentially contravene financial services laws, including Australian financial services licensee obligations.

ASIC’s Expectations and Principles for Better Practice

REP 820 sets ASIC’s expectations for the significant improvement in the private credit investment market. These expectations include:

• Stewardship: Active oversight by responsible entity and trustee boards, covering valuations, conflicts, liquidity, and impaired assets to ensure fair and proper conduct.
  
• Organisational Capability: Adequate expertise and resources across credit, risk, compliance, valuation, conflict management and liquidity reporting.
  
• Transparency: Consistent and comprehensive reporting to investors.
  
• Product Design & Distribution: Identification of appropriate target markets and strong oversight of distribution practices, especially for complex or high-risk products.
  
• Fee and Cost Disclosure: Fair and transparent breakdowns to investors of all fees and income streams received by managers.
  
• Conflict Management: Avoiding arrangements that unfairly benefit one party, ensuring fair allocation across funds, and properly disclosing related party transactions.
  
• Governance: Documented decision-making and escalation processes with clear accountability.
  
• Valuations: Regular, consistent and fair loan valuation methods.
  
• Liquidity: Disclosure of redemption terms, liquidity gates and stress-testing practices to investors.
  
• Credit Risk: Robust frameworks for monitoring credit risk of loans and escalation protocols for early signs of borrower distress.

Looking Ahead: ASIC’s Regulatory Focus

Looking ahead to 2026, ASIC has indicated the focus of its regulatory surveillance on the private credit market will include fees, margin structures, and conflict of interest management in wholesale private credit funds, as well as the distribution of these funds to retail clients through direct and advised channels. We also expect that ASIC will broaden this regulatory focus and surveillance to private markets more generally. ASIC has hinted that it will use this ongoing surveillance to highlight the need for key legislative reforms for managed investment schemes.