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The finance industry has warned that limited transparency in private lending is damaging confidence in the market and making it harder to effectively monitor the space.
The Australian Securities and Investments Commission (ASIC) has received a broad range of feedback as part of its review into private markets – including private credit – with respondents singling out a lack of transparency as an area of concern.
Industry feedback followed on from ASIC’s warning issued in February that “failures are on the horizon” in the private credit market, as the regulator called for more information to assess risks and plan possible regulatory intervention.
The regulator received almost 90 submissions in response to its request for feedback (around 50 of which have been published) and said respondents highlighted the need for regulatory guidance on private markets to be measured, while ensuring it worked closely with industry and rules aligned to international standards.
‘Limited transparency’ in private lending
In its response, the Australian Banking Association (ABA) said it expects private credit to “continue to grow and potentially compete with traditional banks in some asset classes, given the substantial capital that needs to be deployed”.
“It will be important to ensure there is a level playing field for public and private participants, to the extent that private credit directly competes with public markets as source of capital,” the ABA submissions said.
“As such, we support enhanced transparency and reporting standards to allow for effective monitoring and to assist with protection of retail and wholesale investors.”
It said areas for focus should be provisions for stressed loans, fund-level liquidity, and better transparency on fees and charges.
“Enhancing transparency and reporting standards would help improve confidence in private markets and help to better understand the risks inherent in private credit and private market funds, by allowing for effective monitoring and improving retail and wholesale investor protections,” it said.
Similarly, the Property Council of Australia (PCA) urged the need for gradual regulatory change and said reforms had recently “eroded confidence in Australia as a destination for international investment, including from private credit equity, and direct investment into property”.
“Members continue to report to the Property Council that foreign investors, including private equity and credit, consider the ever-changing and negative regulatory environment in Australia as a sovereign risk,” the body said.
The PCA said that ASIC should ensure regulatory changes are minimised, proportionate, and maintain Australia’s competitiveness for capital.
The body also said that any steps that reduced competition in the lending market would damage wider property development in Australia.
In contrast to ABA’s feedback, the Property Fund Association (PFA) said private markets are “functioning efficiently” and disagreed with the view that greater regulation of private markets is required.
“Australia has a flexible regime that appropriately delineates between the sophistication of retail and wholesale investors in unlisted funds,” it said.
“The PFA believes that existing regulatory framework and oversight are fit for purpose to support efficient capital raising and confidence in private markets.”
Noting the submissions, ASIC chair Joe Longo said the agency was closely considering the submissions to inform its next steps.
“We heard our markets are strong but changing, and that public and private markets must complement, not cannibalise each other,” he said.
“We look forward to announcing the adoption of some of the proposed actionable ideas and will share our roadmaps for public and private markets in the third quarter and fourth quarter, respectively, this year.”
In February, ASIC said it would increase its focus on private credit, not to constrain participation, but with a view to being “well informed and to test whether investment offers comply with existing laws”.
The regulator has previously raised concerns over private credit market risks. In October, it commenced proceedings against private lender Oak Capital over “allegedly engaging in unconscionable conduct to avoid the National Credit Code”.
[Related: ASIC warns ‘failures are on the horizon’ for private credit market]
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