Key Takeaways
- • ASIC's Report 846 signals the regulator's preparedness to embrace an industry standards approach to private credit, with industry bodies pre-briefed and announcements released alongside the report.
- • The Financial Services Council (FSC) will make its private credit Standard mandatory for Full Member funds management and superannuation companies from 1 July 2027.
- • The Australian Investment Management Association (AIMA) and Alternative Credit Council (ACC) issued voluntary, principles-based Sound Practices for Australian Private Credit Managers, drawing on about 20 member firms.
- • The AIMA/ACC guidance covers seven areas: lending and risk management, transparency, valuations, liquidity, fee transparency, distribution funding disclosure and conflicts of interest.
- • The FSC is reviewing its widely used DDO target market determination templates and will consider more prescriptive private credit-specific DDO guidance.
Summary
The Australian Securities and Investments Commission (ASIC) has indicated it is prepared to adopt an industry standards approach to oversight of private credit, according to Financial Newswire. The regulator pre-briefed industry bodies ahead of the release of its Report 846, allowing them to publish announcements on the same day. Those announcements revealed a divergence between a voluntary approach and a mandatory one.
ASIC acknowledged the "work of industry bodies in their development, review and eventual adoption of enhanced industry standards," stating that such standards "mark an important step towards lifting practices across a sector that has grown dramatically in size and breadth." The regulator said recent developments "reinforce why strong governance, effective oversight, clear disclosure and accurate valuations are critical." ASIC's report highlighted risks in private credit, including distribution and marketing of retail products and shortcomings in target market determinations, particularly risk ratings and portfolio allocation recommendations.
The Financial Services Council, through chief executive Blake Briggs, said its Standard had been recognised in the ASIC report. The FSC Standard covers governance and accountability, valuations, liquidity and leverage, conflicts of interest, fee and income transparency, investor disclosure and credit risk management. It will be mandatory for FSC funds management and superannuation Full Member companies from 1 July 2027. The FSC is also reviewing its widely used Design and Distribution Obligations target market determination templates and will consider whether more prescriptive private credit-specific DDO guidance is needed.
By contrast, AIMA, issued jointly with the Alternative Credit Council, released Sound Practices for Australian Private Credit Managers, which it said draws on contributions from approximately 20 member firms and on global private credit expertise. The guidance calls for sound lending and risk management, greater transparency in arrears and defaults, clear and consistent valuations including disclosure of 'as is' or 'as if complete' bases, improved liquidity management aligned with loan liquidity, fee transparency including borrower-paid fees and retained interest margins, clearer disclosure of how distributions are funded, and stronger management of conflicts of interest. The associations said the voluntary approach "recognises the diversity of lending strategies, assets, fund structures and investor bases across private credit," encouraging managers to document and justify their practices to investors rather than adopting a uniform prescription.
ASIC acknowledged the "work of industry bodies in their development, review and eventual adoption of enhanced industry standards," stating that such standards "mark an important step towards lifting practices across a sector that has grown dramatically in size and breadth." The regulator said recent developments "reinforce why strong governance, effective oversight, clear disclosure and accurate valuations are critical." ASIC's report highlighted risks in private credit, including distribution and marketing of retail products and shortcomings in target market determinations, particularly risk ratings and portfolio allocation recommendations.
The Financial Services Council, through chief executive Blake Briggs, said its Standard had been recognised in the ASIC report. The FSC Standard covers governance and accountability, valuations, liquidity and leverage, conflicts of interest, fee and income transparency, investor disclosure and credit risk management. It will be mandatory for FSC funds management and superannuation Full Member companies from 1 July 2027. The FSC is also reviewing its widely used Design and Distribution Obligations target market determination templates and will consider whether more prescriptive private credit-specific DDO guidance is needed.
By contrast, AIMA, issued jointly with the Alternative Credit Council, released Sound Practices for Australian Private Credit Managers, which it said draws on contributions from approximately 20 member firms and on global private credit expertise. The guidance calls for sound lending and risk management, greater transparency in arrears and defaults, clear and consistent valuations including disclosure of 'as is' or 'as if complete' bases, improved liquidity management aligned with loan liquidity, fee transparency including borrower-paid fees and retained interest margins, clearer disclosure of how distributions are funded, and stronger management of conflicts of interest. The associations said the voluntary approach "recognises the diversity of lending strategies, assets, fund structures and investor bases across private credit," encouraging managers to document and justify their practices to investors rather than adopting a uniform prescription.
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