ASIC warns private credit firms of enforcement over poor practices

Australia's corporate regulator has put the country's fast-growing private credit industry on notice, warning that enforcement action is likely unless firms lift their standards.

Simone Constant, a commissioner at the Australian Securities and Investments Commission (ASIC), said the sector's expansion and increasing complexity had run ahead of industry practices. Speaking in Sydney on Tuesday, she said the regulator had moved past issuing warnings.

"The clock is ticking," Constant said. "Whether we see broader credit stress or not, certainly the tide is going out on poor private credit practices." She added that the sector should prepare for enforcement action.

The remarks follow 18 months of intensified scrutiny by ASIC, which has also been monitoring wholesale and retail funds while pursuing enforcement investigations. Constant said the regulator continues to find problems in several areas, including valuations, liquidity, governance, conflicts of interest and transparency.

ASIC estimates the private credit market to be worth about A$200 billion ($142 billion). The sector is heavily weighted towards real estate lending, which accounts for roughly 40% to 60% of the market.

Constant said such lending is exposed to inflation, rising costs, project delays and unrealistic asset valuations. When loans deteriorate, she said, fund managers must make difficult decisions rather than focus on "protecting fees or appearance".

She pointed to the recent collapse of property developer Bathla, which owed A$3 billion to more than 40 lenders when it entered administration. Administrators described the debt burden as a significant contributor to the failure.

"The collapse of Bathla reinforces why strong governance, effective oversight, clear disclosure and accurate valuations are critical," Constant said.