ASIC's enforcement team steps in: on-site visits and document searches signal a new phase for private credit

The enforcement arc: why this was predictable

Throughout 2025, ASIC's engagement with Australia's private credit sector followed a clear and deliberate sequence: consultation, surveillance, reporting, and regulatory uplift.

The trajectory from surveillance to enforcement was clearly signalled:

ASIC REP 814 "Private Credit in Australia" (September 2025)

The expert report commissioned by ASIC identified systemic deficiencies across the private credit sector: opaque fee structures, related-party conflicts, valuation inconsistencies, and inadequate governance. Critically, it drew a distinction between institutional-grade operators, which generally demonstrated sound practice, and segments targeting wholesale and retail investors, particularly in real estate construction finance, where the concerns were most acute. REP 814 also set the normative benchmark: private credit, done well, serves an important economic function. The implication, that some private credit was not being done well, was deliberate.

ASIC REP 820 "Private credit surveillance report: Retail and wholesale surveillance" (November 2025)

ASIC's own surveillance report built on REP 814 with the specificity that comes from having examined 28 funds directly. It identified seven focus areas – governance and oversight, disclosure, fees and net interest margins, valuations, conflicts of interest, credit management, and liquidity – and provided granular examples of better and poorer practices in each area. Funds involved in real estate lending and those distributing to retail clients through advised or direct channels received particular scrutiny. The release noted uplift was required across the sector, and ASIC was watching.

ASIC issues updated guidance: updated RG 181 "Managing Conflicts of Interest" and Regulatory Catalogue (December 2025)

The updated regulatory guide on conflicts management left little room for ambiguity about what ASIC expects. The illustrative scenarios in RG 181 – related-party lending between affiliated funds, retention of borrower-paid fees, differential investor treatment via side letters, conflicts in vertically integrated structures – are thinly veiled descriptions of the conduct identified in REP 820. The Regulatory Catalogue clearly signalled the relevant legal and regulatory obligations that private credit funds were expected to comply with. Together, these documents constructed the legal and normative framework against which ASIC will now measure the conduct of the funds it investigates.

ASIC's 2026 enforcement priorities (November 2025)

ASIC identified "poor private credit practices" as a new enforcement priority for 2026  to send a message to the rapidly expanding private credit sector to "get its governance right". ASIC Deputy Chair, and Chair Elect, Sarah Court was direct: ASIC would not hesitate to take enforcement action to "stamp out misconduct" in the private credit sector.

What ASIC is targeting: reading the roadmaps

REP 820's seven focus areas, together with ASIC's Regulatory Catalogue, tell you what ASIC will be focusing on in its enforcement investigations.

Disclosure and transparency

REP 820 identified inconsistent definitions of key terms – "investment grade", "senior debt", "loan-to-value ratio" – as a persistent problem, one that makes performance reporting unreliable and investor decision-making harder. The better practice standard is consistent, clear, timely and comprehensive disclosure. ASIC will be testing whether marketing materials, product disclosure statements and ongoing investor reporting actually meet the disclosure requirements set out in various ASIC Regulatory Guides, and also the design and distribution obligations on retail funds.

Marketing and distribution

This is a distinct enforcement priority. ASIC issued interim stop orders on target market determinations during its surveillance period and found instances of funds being distributed to investors outside their target market. Poorer practices included marketing materials that emphasised returns without adequate disclosure of risk, inconsistent use of benchmarks, and the offering of side letters granting preferential redemption or information rights to select investors without disclosure to the broader investor base. ASIC expects marketing to be fair, balanced and consistent with the underlying product disclosure, and distribution to comply fully with the design and distribution obligations.

Fee and income transparency

This is one of ASIC's most acute concerns, and for good reason. Some managers were found to be retaining 50 to 100 per cent of upfront and other fees paid by borrowers – a structure that creates a direct conflict between the manager's economic interest and the fund investors' interest in maximising the interest margin. Net interest margin capture through special purpose vehicles is a related issue. ASIC will be examining fee disclosure, the economic flow of borrower-paid fees, and whether the structures in place are consistent with licensees' obligations to manage conflicts and act in investors' interests.

Governance and conflicts management

REP 820 treats governance and conflicts as a single integrated focus area. Poorer practice observed in the surveillance included informal decision-making structures, inadequate escalation protocols, and boards not receiving the information they needed to discharge their oversight obligations. Related-party lending, loans to entities affiliated with the fund manager, transfers between related funds without independent oversight, sits at the centre of ASIC's concerns. The updated RG 181 has served formal notice that ASIC will test conflicts management with the same rigour as any other core compliance obligation. The expectation is systematic identification, disclosure and management of conflicts, with board-level oversight and contemporaneous documentation. Static conflict registers reviewed annually will not meet the standard.

Valuations

The frequency, independence and methodology of valuations are central concerns. ASIC observed funds that did not conduct regular valuations, used internal valuations where independent assessments were warranted, and applied inconsistent impairment recognition. In a sector that has not yet experienced a credit downturn, the absence of impairments in some portfolios was itself flagged as a warning signal. ASIC will be scrutinising valuation governance frameworks, the independence of valuers, and the consistency of application.

Liquidity management practices

Liquidity mismatches between illiquid underlying loans and the redemption terms available to investors remain a structural vulnerability, particularly as retail investor participation through evergreen fund structures has grown. ASIC found that many funds lacked formal liquidity stress testing. The better practice standard includes documented liquidity management frameworks, regular stress testing across a range of scenarios, and alignment of redemption terms with the liquidity profile of underlying assets. ASIC will be assessing whether liquidity management practices are genuinely fit for purpose.

Credit risk management practices

Poorer practice in credit assessment was widespread. ASIC found funds relying on what it described as a "common sense" approach to borrower assessment, with limited or informal credit processes, the absence of internal credit scoring or rating systems, and inconsistent definitions of default. These deficiencies make performance reporting unreliable and create hidden portfolio risk. The better practice standard requires documented credit assessment frameworks, formal internal credit ratings, defined default and impairment triggers, and ongoing monitoring of borrower covenants and credit quality. ASIC will be assessing the robustness of credit processes and whether they are commensurate with the risk profile of the fund's lending activities.