ASIC’s warning to private credit funds came as the regulator unveiled a wider “roadmap” to encourage growth of both private and public capital markets in Australia, including measures to encourage more sharemarket listings.
While market capitalisation of the ASX has nearly doubled in the past decade, the number of listed companies has fallen over that time and the value of equity raised in initial public offerings (IPOs) has plunged.
ASIC indicated it was keen to reinvigorate the market for IPOs, and said some participants viewed regulation as one reason for the decline in listings. It encouraged the ASX to look at simplifying future editions of its corporate governance principles to ensure they were not deterring businesses from listing on the sharemarket.
Longo said other developed countries were grappling with similar issues to Australia, and he emphasised that growing both public and private markets was important because it would help businesses to grow, creating jobs.
“Markets aren’t some abstract construct,” Longo said. “They represent the money and investment flowing through our economy.”
“They are literally the lifeblood that lets businesses grow and employ people. And to that end, we want to ensure that we’re making active choices about how these markets develop, so we get the markets we want.”
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“The alternative is that technological developments and the opportunism of other countries could see Australia become a passive recipient of changes which may not be for the better.”
ASIC’s findings on private credit were based on surveillance it conducted of 28 private credit funds, the regulator pointing to various examples of “poorer practices”.
It said many funds were not transparent about the interest rates they charged to borrowers, there were problems with “weak governance and poorly managed conflicts of interest” and most funds reviewed by ASIC had poor valuation practices.
ASIC has also raised concerns over what funds were telling investors about non-performing loans, saying funds defined important terms such as “default” or “loan security” inconsistently.
Some bank bosses have previously called for stronger regulation of private credit, and Australian Banking Association chief executive Simon Birmingham welcomed ASIC’s focus on the industry.
“This appears to be welcome progress to ensure private credit has high standards in investor protection and market integrity while taking steps to increase transparency,” he said.
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