Stakeholders ask ASIC for tougher private markets regulation

ASIC is facing growing pressure to up the ante on regulating private markets, particularly private credit, as key stakeholders fear offerings are becoming increasingly accessible to retail investors.

In response to the inaugural discussion paper that pitted the dynamics between public and private markets, the industry overwhelmingly urged for increased regulatory scrutiny that could benefit retail and less sophisticated wholesale investors.

While the regulatory framework across private markets is generally sound, ASIC said after collating 50 responses, there is scope for some targeted uplift and for more active and ongoing monitoring and supervision in wholesale and retail private markets.

Many stakeholders called for increased supervision of the local private credit market "due to its opacity, rapid growth, and untested status in a downturn."

"The increasing exposure of retail investors to private credit markets was also called out for closer examination following concerns for potential non-investment risk-driven losses (e.g. through illiquidity, conflicts of interest and opaque fees)," ASIC said.

The lack of transparency is a top issue among respondents. Private credit product providers, however, showed a willingness to engage with ASIC to tackle this and flagged an openness to implement more consistency in standards and practices.

The regulator is currently undertaking a surveillance of private credit funds operating in wholesale and retail private markets, aiming to better understand current disclosure, distribution, conflicts of interest, valuation, conduct practices and use of ratings.

"This will be supplemented by insights from industry experts to inform the actions the agency will take to maintain integrity, protect investors and promote the quality of Australia's private credit industry," ASIC said.

Some respondents highlighted concerns around the need for greater efficiency and transparency of corporate debt markets. ASIC said it will consider this in due course.

Another common sentiment was that "private markets are here to stay and grow" albeit with the need for regulatory guidance and alignment to international standards.

With respect to valuations, additional supervision was warranted in this area, along with guidance on valuing assets, managing conflicts of interests, providing meaningful disclosure of fees and risks, and the fair treatment of different investor types.

Stakeholders also asked for recommendations on how to align practices through existing standards either domestic or international or through ASIC's guidance.

Moving forward, ASIC will announce which suggestions will be adopted and share its roadmaps for public and private markets in the second half of the year.

"ASIC wants both public and private markets to thrive and flourish - together, they drive more investment, more opportunities for companies to grow, and more jobs for Australians," ASIC chair Joe Longo said.

"I was encouraged by the breadth and richness of the responses we received, which recognised this is a timely discussion that will shape the future of Australia's capital markets. We heard our markets are strong but changing, and that public and private markets must complement, not cannibalise each other."