ASIC Moves Beyond Warnings on Private Credit Lenders
Australia's corporate regulator has flagged enforcement action against private credit funds, as a NSW developer collapse stalls 14,000 new apartments.
Australia's corporate regulator has declared that the time for warnings is over for private credit funds that have failed to lift governance and disclosure standards, with enforcement action now on the horizon for a sector that has grown by an estimated 500 per cent over the past decade.
ABC News reports that ASIC commissioner Simone Constant told a Sydney gathering hosted by the Commercial and Asset Finance Brokers Association that the clock is ticking on credit stress in Australia. We're now beyond warnings. The sector should prepare for enforcement action, Constant said.
Private credit – any lending that occurs outside the traditional banking system – has grown rapidly in Australia and globally. Funds under management in the alternative investment space have quadrupled globally over a comparable period, and the sector's scale is now so vast that there are estimated to be more private equity funds operating in the United States than McDonald's stores.
What ASIC found inside 28 private credit funds
Over 18 months of intensified scrutiny, ASIC reviewed 28 private credit funds and found the results alarming across every key measure of sound lending practice.
Only four of the 28 published any information about the interest rates or ranges charged to borrowers. Fewer than half had detailed, written credit, impairment or default management policies in place. Most funds lacked adequate separation between those responsible for approving loans and those responsible for independently assessing the ongoing performance and value of those loans. Of the wholesale funds reviewed, only two performed stress testing as part of their liquidity risk management.
ASIC also assessed Australia's private market disclosure practices against comparable international standards and found Australia falls well south of the line relative to Singapore, the United States, the United Kingdom and Switzerland.
Commissioner Constant described the findings as clearly red flags. Governance, controls and underwriting standards have not kept pace with this growth, she said. ASIC had previously challenged the sector to lift its standards by 2027. We challenged the sector to lift standards by 2027 – that's three months away, Constant noted. We're now beyond warnings.
The Bathla collapse and what it means for housing supply
For property buyers and prospective home owners, the private credit sector's governance failures are not an abstract financial regulation story. The collapse of NSW property developer Bathla puts a concrete face on what poor private lending looks like in practice.
CVS Lane First Mortgage Fund and CVS Lane Property Finance Fund held exposure to Bathla across nine separate loans. With Bathla now in severe difficulty, its pipeline of 14,000 apartments – representing approximately 18.5 per cent of new housing stock expected to be delivered in New South Wales this year – has stalled. The flow-on consequences for housing availability are significant at a time when supply is already under pressure.
FinCap executive chairman Christian Ryan told ABC News that a broader, rapid exit of investor money from the private credit sector was possible, with some funds already beginning to limit redemptions as a precautionary measure. If you reflect on the material collapses in the past where retail investors in particular have been caught out with investors directly, this type of mechanism is enacted sometimes too late, Ryan said.
Globally, stress in the sector is becoming visible. Morgan Stanley's North Haven Private Income Fund capped withdrawals at 5 per cent in the third quarter after investors requested to pull 11.4 per cent of shares, according to a shareholder letter cited by ABC News.
RBA Governor Michele Bullock, speaking before Parliament last week, assessed the private credit situation as primarily a risk for fund investors rather than a systemic concern for the broader financial system. Any weakening in lending standards in that segment are primarily going to be a problem for investors who invested in those funds. It doesn't speak to a systemic issue, Bullock said. But that assessment applies to financial stability, not to the experience of buyers whose contracted properties are mid-construction when a developer runs into difficulty.
What investors and first home buyers should consider
For borrowers building or buying new property that relies on private credit financing – particularly off-the-plan purchases in NSW – the current environment warrants careful attention. Understanding the financing structure behind a development project has always been relevant due diligence; in today's environment it carries more weight.
Investors considering new-build or development-backed acquisitions should review their broader lending arrangements to ensure they are positioned for a market where private credit availability may tighten. Our investor home loan comparison allows you to assess current options across lenders and identify where your lending structure may need updating.
First home buyers weighing off-the-plan purchases should take time to understand the developer's funding arrangements and financial position before signing a contract. Our first home buyer guide covers the key questions to ask when assessing a purchase in a market where developer risk has become more visible.
ASIC's shift from guidance to enforcement represents a line in the sand for the private credit sector. The sector has had two years of notice, and three months remain before the 2027 deadline the regulator originally set. For buyers and investors, the practical question is not whether enforcement is coming – it is whether the developers and funds behind the projects they are evaluating are already operating well above the line ASIC has drawn.