ASIC has identified private credit markets as an enforcement priority for 2026. This stems from a range of regulatory concerns including ASIC’s assessment that economic factors have been driving increased retail client exposure to private credit markets.
The recent collapse of a UK mortgage firm Market Financial Solutions signals global private credit market anxiety which is likely to reinforce ASIC’s continuing focus on surveillance of the sector.
ASIC’s current concern is articulated in ASIC Report: REP 820 Private credit surveillance: retail and wholesale funds which identifies:
a rapid expansion in Australia’s private credit market over the past 18 months
continued growth, driven by factors such as:
• the increasing size of Australian superannuation savings focused on seeking investment diversification and yield;
• moderation in bank lending to higher-risk real estate ventures; and
• increased retail investor participation through ‘evergreen’ and exchange-traded investment products
ASIC has, for some time and on an ongoing basis, indicated its intention to more closely supervise the private credit sector. This reflects concerns about several emerging risks including:
Low investor entry thresholds, exposing less-sophisticated investors to higher-risk products.
Broader distribution via investment platforms (including superannuation) that increases access to complex and less transparent products.
Mis-selling and unsuitable product selection where products may not align with investor profiles. Investor decisions made without adequate disclosure which limits informed risk assessment.
Against this background, a substantial part of non-bank lending and private credit is not directly regulated nor is private credit a homogenous, product. This insight considers the likelihood of an expansion of ASIC’s current regulatory surveillance boundaries going forward.
ASIC’s focus on Private Credit
REP 820 describes private credit as non-bank lending where the debt is not publicly traded or widely issued. A private credit fund is defined as a managed investment scheme that has, or is likely to have, a majority of its non-cash assets invested in private credit.
This sector is largely serviced by non-bank financial institutions (NBFIs) which operate without banking licences, such as superannuation funds, insurers, non-bank lenders and investment funds.
A recent ASIC-commissioned report late last year conducted a high-level review of Australia’s private credit market. For its analysis, it adopted a broad definition of private credit (namely, non-bank lending that is not publicly traded or widely issued) without regard to particular regulatory boundaries.
The Report expresses that it is “less concerned about putting accurate boundaries around and labels on the investment class of ‘private credit’ and more concerned about trying to understand the environment of non-bank, non-consumer lending in Australia”.
Other methodologies ASIC has adopted in analysing private credit in REP 820 (in the context of surveillance) include:
private credit strategies – including direct lending to businesses and property developments, and indirect lending through warehouse-type structures that provide an indirect or synthetic exposure to the warehouse’s pool of underlying loans, noting that the wholesale funds we reviewed provide significant funding to real estate, and
structures - including either direct or indirect investment exposure via intermediary funds such as feeder funds, underlying funds, sub-trusts or SPVs.
This signals ASIC’s clear intent to examine the broader private credit market beyond currently regulated segments, particularly where structures facilitate retail exposure or create potential systemic or market integrity risks through bank–private credit linkages. At the same time, ASIC recognises that private credit complements bank lending and supports market efficiency by providing capital where traditional lending may be constrained.
Domestically private credit funds remain a primary growth driver in lending, accounting for about 70% of loans outstanding. Consistent with its mandate, ASIC’s recent surveillance has focused on these funds, identifying inconsistent and, at times, deficient practices.
Whilst this focus is consistent with and reflective of ASIC’s regulatory mandate, we expect more extensive surveillance of private credit markets and non-bank lending beyond that remit, driven by the factors discussed in this insight.
What is the Regulatory Objective
ASIC recognises that private credit is pervasive, has a broad spectrum of investors and a variety of investment structures which are summarised in the table below.
Investor Cohort | Investment Structures | Relationships between banks and private credit providers |
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Market Risk
Market analysis has identified that a few factors appear to be driving growth in private credit in Australia, such as:
increasing inflows into superannuation accounts due to the superannuation guarantee levy
changes in asset allocation in investment/superannuation portfolios towards ‘alternative’ investments, to improve diversification and investment returns (seeking yield)
offshore fund and asset managers seeking to access increasing investment and superannuation fund flows in the Australian market
growing ‘private’ wealth from family office and similar types of money.
In particular, the proportion of private credit invested in real estate and the concentration in higher risk construction and development, differentiates the Australian market from overseas markets and models.
This combination of factors has led ASIC to currently focus on credit funds, particularly as retail investors access exposure to private credit either through APRA-regulated superannuation funds or from collective investment schemes under the AFS licence regime.
ASIC’s expanding surveillance of non-bank lending and private credit appears less pre-emptive and more likely inevitable in light of the recent collapse of UK mortgage provider Market Financial Solutions which has had a ‘knock on” global impact amongst banks and structured credit affiliates reflecting the interdependence and pervasive risk exposures between public and private markets.
Looking Ahead – What will drive surveillance in the future?
Based on the regulatory market analysis and material released by ASIC to date, we anticipate that the following factors will influence regulatory surveillance in the short term:
Retail trigger point: we expect continuing surveillance of non-bank lending, particularly where there is interrelationship with a regulated component such as a credit fund which is a registered managed investment or loans provided by regulated credit provider, non-bank lenders providing debt financing direct to consumers and small businesses via standardised product offerings (largely being Registered Financial Corporations) or if there is a tangential retail client risk exposure.
Wholesale funds are not immune: wholesale credit funds (unregistered managed investment schemes) are not immune from ASIC surveillance. Private credit surveillance has underscored the gaps in regulatory settings for ASIC’s ongoing supervision of wholesale funds and in this regard, ASIC has released a catalogue summarising key legal obligations and regulatory guidance to help private credit fund operators more easily identify and comply with existing regulatory obligations. ASIC has expressed that the catalogue provides a practical reference point and applies to operators of retail and wholesale private credit funds in Australia. It is also relevant to the broader funds management sector. Interestingly, ASIC has expressed that:
“Segments of the market targeting wholesale investors using the ‘sophisticated investor’ exemption and retail-based offerings, including platforms, have practices that do not compare favourably against international practice. Lenders in these segments are more likely to have conflicts of interest, opaque fee and interest margin arrangements, inconsistent and non-independent valuation methodologies, and ambiguous terminology”.
Focus on growth factors: currently the proportion of private credit invested in real estate and the concentration in higher risk construction and development is driving and will continue to drive regulatory risk considerations.
Practices under review: in REP 823 ASIC has encouraged industry to contribute to improving the poor practices identified in private credit markets within the next 12 to 18 months. ASIC has identified the relative lack of transparency in fund disclosure in relation to portfolio mix, impaired assets, income-producing versus non-income-producing loans and related party transactions, fee structures and obtaining independent loan valuations.
Systemic exposure: Interestingly, ASIC has not only scrutinised regulated private credit and non-bank lending sectors but, as discussed above, has looked at the broader private credit market to assess systemic exposure, for example if managers hold a material exposure to one particular sector or industry. In our view, ASIC has currently concluded that systemic risk is unlikely to be a current major concern given the relatively small size of the Australian private credit market, however its rapid growth warrants ongoing regulatory monitoring. ASIC recognises that private credit is concentrated among a small number of large domestic and global funds and market intermediaries and is deeply interconnected with the banking system and broader economy. In our view, ASIC and the prudential regulator are likely to monitor the private credit market closely as it continues to grow, particularly where there may be increased bank exposure to private credit through partnerships and funding.
Recent offshore failures particularly involving private credit fund exposure to AI disruptors via software investment reveals structural weaknesses in private credit and potential contagion risk through insurers, banks, and hybrid funds.
For Australian private credit participants, the question is no longer whether regulatory and prudential surveillance will intensify, but where it will be targeted.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.