Following warning signs from a new review, ASIC is moving to raise standards in the private credit sector, and has issued a series of stop orders against some current operators

ASIC's recent focus has brought a series of actions against questionable behaviour among private credit firms.

'Private credit' is lending by non-banks such as specialised credit managers, insurance and asset managers, superannuation funds and Family Offices. It involves making loans to private companies or buying those loans on the secondary market.

Because it attracts investors looking for enhanced returns, it also attracts managers who have liked to operate with lesser transparency than banking requires. It has also attracted superannuation fund managers and SMSFs.

It is now a $200 bln sector, and growing rapidly.

Recently ASIC issued stop orders against RELI Capital Mortgage Fund (25-208MR) and La Trobe’s US Private Credit Fund (25-205MR) and Australian Credit Fund (25-206MR).

These actions have highlighted regulatory deficiencies and the risks to financial stability.

ASIC says private credit is good for the economy and investors, if done well. But there is work to do to ensure it is sustainably done well. And a key missing ingredient is transparency.

The latest actions come after ASIC noticed the rapid growth and commissioned a review of private credit funds sector by infrastructure investment executive Richard Timbs and former banker and chief risk officer Nigel Williams. That review delivered insights on the size and nature of the sector and included examples of both good and poor practices.

ASIC says 'Enhanced standards are needed to lift practices across the sector. They will help promote confidence, improve market integrity and empower investors to make informed decisions.'

'When an industry agrees on clear standards, it shows a strong commitment to doing things right and we welcome the industry's commitment to leading this work. They need to act decisively.'

Self-regulation is unlikely to work. Too much money is now involved and that now included superannuation funds.

ASIC's focus on ensuring minimum standards for private credit is just starting.