ASIC will be “accelerating” private credit oversight with retail distribution at the heart of the concerns.
In a discussion paper released earlier this year, ASIC anticipated “failures are on the horizon” in the asset class and on Wednesday morning, ASIC Commissioner Simone Constant announced the regulator will be “accelerating our work” on private credit.
“It’s definitely a stream of work that we’re biting into earlier than some of the others – this is a multi-year program of work,” she told the Investment Magazine Fiduciary Investors Symposium, held by the sister publication of Professional Planner in the NSW Blue Mountains this week.
Not long after ASIC’s discussion paper was released in February, major licensee Count had recommended its advisers sell holdings in at least three funds run by Metrics Credit Partners, sparking a re-assessment over the appropriateness of private credit in retail client portfolios.
Constant said while the scrutiny over private credit will cover all parties across the investment spectrum from retail to institutional investors, the former is still a key concern.
“When we’re looking at the increased distribution of private credit to retail, we’re paying close attention to that, and we’ve got some related surveillance work underway,” Constant said.
However, Constant said private credit is good for the economy, with the caveat “if done well”.
“It gives an opportunity to invest for those wanting to invest, it provides a source of credit for borrowers,” Constant said.
“In the responses [to the discussion paper], we had institutions, investors, originators and private credit fund managers…calling out for improvements in practices [and] a better picture of what done well looks like in private credit for institutions as well.”
ASIC has commissioned an “expert insight paper” that will cover the future state of Australia’s capital markets, the private credit environment, and international approaches to data and transparency in private markets.
The corporate regulator had already released a report this week which said the governance of managed fund compliance was “lacking”.
“There’s related pieces of work across ASIC on private credit, consistent – not just with the feedback we’ve had and not just the global trend that shows growth in this space – with what we’re seeing here which is an asset class that is here to stay and here to grow,” Constant said.
‘It’s still other people’s money’
ASIC’s February discussion paper aimed to kickstart the conversation to reassess the interplay between public and private markets – whether the former was overregulated or the latter was underregulated.
Constant said the regulator has received a clear message not to rush to create new regulation and has promised their approach will be to “measure twice, cut once”.
“I want to assure this room today that we aren’t looking to shoot first, ask questions later,” she said.
ASIC’s reflection of the feedback showed private markets will continue to grow, acknowledging any future regulatory guidance needs to be aligned to international standards, but more work needed to be done on data collection and transparency.
Constant said the regulator doesn’t believe companies are choosing to stay private to avoid scrutiny, rather the feedback they received was because it was easier to pursue growth.
The commissioner also pushed back on the notion institutional investors were matured enough to look after themselves, noting the regulator has a mandate to maintain, facilitate and improve financial system performance and increase investor confidence.
“Those sophisticated institutions are managing other people’s money,” Constant said. “It’s still other people’s money and I don’t say that in a flippant way.”
Heavy feedback
The regulator released submissions on Wednesday morning with 56 non-confidential papers made public, and Constant noted there were almost 90 submissions overall, including from super funds at the symposium.
Submissions from the Super Members Council and the Association of Superannuation Funds of Australia are accessible, but there are no publicly available ones from the individual funds.
SMC’s submission argued private markets should be considered at the asset-class level when making regulations. They, along with ASFA, recommended avoiding duplicate regulatory obligations, noting APRA-regulated funds are already under existing regimes.
Super Consumers Australia urged ASIC to prioritise regulatory action on current consumer protections forretail investors, increase scrutiny of platform super products to make them safer for consumers, and close loopholes that allow the misuse of sophisticated investor definitions and the inappropriate promotion of unlisted products via SMSFs.
“Retail investors deserve strong protections from unsuitable, high-risk products – particularly in retirement,” the SCA submission said.
SQM, who announced the private credit sector would be put on ‘watch’, was the only major researcher to place a non-confidential submission to the review which made similar arguments to its last update on the asset class.
The Stockbrokers and Investment Advisers Association said while private markets should not be regulated in the same way as public markets, some oversight is necessary.
“We support additional supervision of private markets by the regulator particularly in areas such as misleading and deceptive conduct, valuation of assets and disclosure,” the SIAA submission said.
The Financial Services Council said any regulatory intervention into private markets for retail investors should aim to protect only unadvised retail investors, as the current regulatory settings sufficiently cover registered advisers.
