Private credit: pockets of improvement, but ASIC's concerns remain

In REP 820, published in November 2025, ASIC set out what good private credit practice looks like. Its follow-up, REP 846, released on 10 November 2026, acknowledges improvements by some managers but finds that many funds have not yet caught up. Between November 2025 and August 2026, ASIC reviewed 24 retail and wholesale funds with about $18 billion under management, together with advice given to 46 retail clients by 19 advisers, and found many of the same fee, disclosure, distribution and conflict-management problems.

The sector has grown in the meantime. REP 846 cites estimates that private credit lending exceeds $250 billion in 2026, with more retail money arriving directly and through superannuation. Conditions are also harder. ASIC points to tighter liquidity, borrower stress and early signs of credit deterioration, and is tracing $3.4 billion lent to the collapsed Bathla Group.

Fees and retained returns

The most notable findings concern fees. Of the 22 funds whose fees ASIC could compare, only two passed the full benefit of interest and borrower fees on to investors. Retained interest margins reached 5.6% for retail funds and 5.9% for wholesale funds. In one fund, a related-party lender kept undisclosed fees and margin worth more than four times the disclosed management cost, receiving 38 cents for every dollar paid to investors.

ASIC accepts that retaining borrower fees is not unlawful in itself, and some managers say these fees cover the cost of establishing and managing loans. ASIC's concern is comparability. If two funds advertise the same return and one does not disclose that it retains borrower fees, that fund may need riskier loans to hit its target, and investors cannot tell. ASIC considers it better practice to disclose the nature and amount of borrower fees and other economic benefits retained from lending. Managers may wish to consider whether an investor reading their disclosure could work out how much risk sits behind the advertised return.

Structural complexity and governance

ASIC recognises that complex structures can serve legitimate commercial purposes, such as isolating risk or managing liquidity. Even so, eighteen of the 24 funds used several layers of intermediary entities, and some had used more than 500 special purpose vehicles since inception. One fund moved about 17% of its assets to related funds in a single year, and another 15%, without full disclosure. In another case, a manager let some co-investors exit early by having the fund buy their interests, but could not show ASIC how it had considered the remaining investors. Poorly disclosed and managed structures and related-party arrangements may leave some investors unknowingly exposed to heightened risk.

Distribution and advice

Nine of the 12 retail funds did not clearly disclose information investors need to make a decision, and ten had target market determinations ASIC considered poorly designed. Most advice ASIC reviewed showed compliance with the law, but 88% of files recommending more than 20% of a portfolio in private credit did not show compliance with the best interests duty. One adviser recommended putting 87% of a client's portfolio into a single fund.

Enforcement action

The surveillance produced two interim PDS stop orders and four interim TMD stop orders, all since revoked after the responsible entities amended their documents. Several matters have been referred for investigation, and other enforcement investigations are well progressed. ASIC considers some practices may contravene financial services laws, including the obligation to provide financial services efficiently, honestly and fairly. Poor private credit practices remain an enforcement priority for 2026–27.

Extending RG 45 to private credit

REP 846's most significant policy signal concerns disclosure. ASIC expects to consult in early 2027 on changes to several fund-related regulatory guides, including a proposal to expand Regulatory Guide 45 Mortgage schemes: Improving disclosure for retail investors (RG 45) to all types of private credit funds. ASIC will propose a definition of "private credit fund" to which the disclosure benchmarks and principles would apply, but has not yet published it. It says the changes reflect its surveillance findings and sector requests for clearer definitions.

RG 45 sets eight benchmarks and eight disclosure principles for unlisted mortgage schemes open to retail investors. Responsible entities must state in the PDS whether each benchmark is met and, if not, why not; address the disclosure principles; and keep advertising consistent with them. The benchmarks cover matters including liquidity, scheme borrowing, portfolio diversification, related-party transactions, valuation policy, loan-to-valuation ratios and distribution practices. Several of these, notably related-party dealings, valuation and liquidity, match weaknesses identified in REP 846, and applying them across private credit would give retail investors common reference points for comparing funds. The scope of the definition, and how benchmarks designed for mortgage lending are adapted to other credit strategies, are likely to be central to the consultation.

What fund operators will need to do

Drawing on REP 846, the following steps reflect ASIC's stated expectations and the likely practical effect of the proposed changes.

1. Disclose all fee and income streams

• Disclose all material fee and income streams, including indirect benefits, retained margins and remuneration received by related entities.

• Disclose the nature and amount of borrower fees and other economic benefits retained from lending, so that investors can assess the risk underlying the advertised return.

2. Review fund structures

• Regularly assess fund structures, including SPVs and related-party arrangements, to confirm they remain fit for purpose.

• Ensure structures do not obscure fees, conflicts or loan performance, and that related-party arrangements, including inter-fund asset transfers, are fully disclosed.

3. Document the management of conflicts

• Where transactions give rise to competing interests (for example, inter-fund transfers or differently ranked exposures to the same borrower), keep records showing how those interests were managed and why the outcome was fair to all affected investors.

• Have regard to ASIC's December 2025 update of RG 181 on conflicts of interest.

4. Ensure marketing is balanced

• Give risks the same prominence as returns in marketing materials.

• Do not overstate liquidity, and clearly disclose defaults and distressed assets.

5. Prepare for RG 45 (retail funds)

• Review PDSs against the RG 45 benchmarks and disclosure principles now, in anticipation of the proposed extension.

• Review TMDs to confirm they are appropriately designed for the fund and its target investors.

6. Originators and related-party lenders

• Expect ASIC scrutiny of the fees and margins retained from investor-funded lending.

• Ensure lending terms do not favour the group over the fund.

7. Advisers and licensees

• ASIC was more likely to find advice compliant where private credit formed a modest part of a diversified fixed-income allocation.

• Concentrated allocations to a single fund, and incentive arrangements with fund operators, were areas of ASIC concern and warrant review against the best interests duty.

Broader regulatory developments

REP 846 points to further work. In addition to its enforcement activity, ASIC is refreshing its fund-related regulatory guides to address the challenges of private credit strategies, building on its December 2025 update of RG 181 on conflicts of interest. It also continues to seek recurring data collection powers for managed investment schemes, noting that the lack of comprehensive data limits its ability to monitor risk, particularly in the wholesale market. Treasury's consultation on the issue, which ran from 23 September to 23 October 2026, proposed enhancing the information collected on registration, introducing recurring data collection for registered schemes and improving visibility of unregistered schemes, including wholesale private credit funds.

ASIC also frames the issue in terms of market stability. The risks of private credit done poorly are no longer confined to institutional or very high-net-worth investors. Poor practices can misdirect capital, undermine stability and harm investors, including millions of Australians exposed through superannuation. Given the sector's scale and concentration, they could also damage general market confidence. ASIC expects governance, controls and distribution practices to keep pace with rising risk as liquidity tightens and borrower stress emerges.

ASIC will continue to scrutinise conduct across the value chain, from underwriters and originators through trustees and responsible entities to valuers and auditors. It acknowledges industry standards work, including the Financial Services Council's private markets best practice standards of August 2026, and says what matters now is that standards are adopted and embedded. It also plans further market surveys, and has added that the sector "should prepare for enforcement actions".

Next steps

ASIC has said that funds should not wait for regulator engagement before reviewing their practices. With consultation on refreshed guidance expected in early 2027 and investigations under way, fund operators may wish to review their disclosure, structures, conflicts processes and distribution arrangements against the expectations outlined above, so that they can clearly demonstrate to investors how their money earns its return.