A raft of compliance requirements targeting valuation, disclosure, and conflicts has been announced as scrutiny intensifies across Australia’s private-credit market.
The Financial Services Council has introduced a mandatory private-markets standard for its funds management members, setting new expectations for private credit valuation, liquidity, conflict management, transparency, and credit-risk oversight.
The peak body for Australia’s financial-services industry released the Private Markets Best Practice Principles and supporting guidance note on Wednesday (26 August), following ASIC’s calls for stronger, more consistent practices across the rapidly growing sector.
The standard will apply to the FSC’s relevant funds management members from 1 July 2027, allowing a transition period for managers to embed the new requirements.
The framework is intended to address growing concerns that private-market investments, whose assets are not traded on public exchanges, can be harder for investors to assess, value, and compare than listed investments.
“The significant growth in the private markets sector has given rise to inconsistent practices that create risk for investors. This was identified by ASIC in its Advancing Australia’s evolving capital markets Report in 2025, and more recently its statement of expectation that private credit managers will lift valuation practices in the lead up to the end of the financial year,” the FSC said.
ASIC’s 2025 work on private markets called for industry bodies to establish strengthened standards within 18 months.
Definition draws lending boundary
A key feature of the FSC package is the first formal definition of private credit proposed by the industry body.
The standard said: “Lending activities conducted through private market structures where debt instruments, loans, credit exposures or similar financing arrangements are not publicly traded.”
It also makes clear that private credit can include privately negotiated lending and financing exposures.
“For the avoidance of doubt, private credit may include privately negotiated lending, credit or financing exposures, including warehouse facilities and exposures to securitisation vehicles, where those exposures are not publicly traded or widely issued publicly,” the definition said.
However, the standard draws a distinction between fund-based private credit and conventional bank lending.
“Private credit does not include ordinary lending activities conducted by an authorised deposit-taking institution in its capacity as a balance-sheet lender outside a private markets fund,” the FSC said.
Valuation and liquidity under focus
Private-market managers will also be required to maintain documented and consistently applied valuation policies, with independence, effective challenge, and defined triggers for revaluing assets after material market events.
The accompanying guidance further suggests private-market assets should generally be valued at least quarterly.
Managers that use a lower valuation frequency will need a documented rationale, while defined valuation reassessment triggers should cover events such as covenant breaches, restructures, weaker asset performance, and increased refinancing risk.
Liquidity is another central focus, with funds now needing to align redemption arrangements with the liquidity characteristics of their underlying assets, alongside clear liquidity-risk management policies, stress testing, and ongoing monitoring.
Fees, conflicts, and credit reporting
The FSC has also moved against the potential for opaque private-market structures to conceal important information from investors.
“Complex fund structures, interposed vehicles, confidentiality constraints or differences in terminology are not be used to obscure material risks, exposures, fees, conflicts or economic benefits to the investor, including the material fees, costs and economic benefits accruing to the investor and to the fund manager,” the requirement said.
Managers will additionally need to identify, manage, and disclose both perceived and material conflicts, including related-party transactions.
The standard also calls for consideration of independent review where transactions carry elevated conflict risk.
For private-credit managers specifically, the standard requires “using clear consistent terminology for key indicators such as arrears, defaults, impairments, watchlist exposures and loan-to-value ratios, and clearly explaining the basis of those measures to investors where different approaches are used”.
It also requires “good governance of credit risks such as identifying, disclosing to investors, and escalation governance around deteriorating credit exposures, including impairments or negative revaluations, on a timely basis”.
Industry-led response
FSC CEO Blake Briggs said the raft of new compliance requirements was designed to provide the sector with a consistent framework for stronger practice.
“The FSC’s new standard and guidance note for private markets and private credit set out a clear framework for good industry practice, supporting greater consistency, transparency and confidence in the sector,” Briggs said.
“The FSC recognises that rapid growth in the private markets sector has created inconsistent practices, which creates risk for consumers, however industry adherence to the Standard will reduce these risks.”
While mandatory only for relevant FSC members, Briggs encouraged broader adoption across the market and flagged a potential role for ratings agencies.
“The FSC’s industry standard will be mandatory for funds management and superannuation members but will also be a publicly available resource for all market participations,” he said.
“We encourage all fund managers and superannuation funds to apply the Standard and related Guidance Note in their businesses, and for ratings agencies to consider the principles when they are rating investment and private credit products.”
He said the standard responded to concerns expressed by both ASIC and the Reserve Bank of Australia about the private-credit market.
“The FSC acknowledges ASIC’s ongoing supervisory work and its collaborative approach to uplifting private credit sector practices. The FSC and our members have responded in good faith to ASIC’s call for enhanced industry standards, to help address the legitimate concerns ASIC and the Reserve Bank of Australia have towards the private credit market,” Briggs said.
[Related: Private credit’s illiquidity cliff]
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