ASIC Updates ‘RG 181’: Guidance on Managing Conflicts of Interest for Private Credit & Mortgage Funds15 min read

Introduction

In December 2025, the Australian Securities and Investments Commission (ASIC) released an important update to its guidance on managing conflicts of interest, RG 181. This update clarifies the obligations for every Australian financial services (AFS) licensee under the Corporations Act 2001 (Cth), reflecting ASIC’s increased focus on conflict management, particularly within the private credit and mortgage fund sectors.

This article explains the key changes from the update to RG 181 for operators of private credit and mortgage funds. It outlines how to identify common conflicts, what ASIC expects in a conflict management framework, and the specific documentation required to demonstrate compliance.

Interactive Tool: See If Your Private Credit & Mortgage Fund Meets ASIC Rules

Understanding ASIC’s Renewed Focus on Conflicts of Interest

The Evolution from the 2004 Guidance to Consultation Paper 385 (‘CP 385’) & Beyond

The ASIC updated its guidance on managing conflicts of interest, replacing a version that had been in place since August 2004. The financial services landscape has evolved significantly since the original guidance was issued. As a result, substantial new obligations for AFS licensees have been introduced, including:

• The best-interest duty: for financial advisers; and
• Prohibitions: on certain types of conflicted remuneration.

In July 2025, ASIC initiated a public consultation process through CP 385 to gather feedback on its proposed changes. Subsequently, the final updated RG 181 was released in December 2025. Furthermore, this update was prompted by compliance issues identified during ASIC’s recent surveillance in the private credit market in Australia, as detailed in Report 820, alongside broader market analysis outlined in Report 823.

Key Principles Driving the RG 181 Update for Your Financial Services Business

A foundational change in the updated RG 181 is the move to an objective standard for identifying a conflict of interest. The guidance now focuses on “actual” and “potential” conflicts, thereby removing the previous references to “apparent” conflicts. Ultimately, an AFS licensee is expected to apply a common-sense and objective approach to determine if a reasonable person would consider that a conflict exists.

In addition, the updated guidance emphasises a proportionate and risk-based approach to conflict management. Under RG 181.52, an AFS licensee should tailor its arrangements based on several key factors, as follows:

• Legal and compliance requirements: which include other related laws and obligations that apply to the financial services business.
• The risks posed by a conflict: considering its likelihood, seriousness, and the potential for harm to consumers or market integrity.
• The nature, scale, and complexity of the business: ensuring that the conflict management framework is suitable for the specific operations of the licensee.

Identifying Conflicts in Private Credit & Mortgage Funds

Common Conflicts for Private Lenders & Fund Managers

In the private credit and mortgage fund sector, specific conflicts of interest can arise from the structure of the business and its transactions. Consequently, an AFS licensee must have adequate arrangements to manage these issues. Common scenarios that require careful management include:

• Fee and margin retention: One common scenario involves a private credit fund operator whose financial interests are motivated by retaining fees and interest margins. According to ASIC’s RG 181, this can lead to the operator prioritising its own revenue over the interests of fund members, who provide the capital and bear the credit risk.
• Valuation processes: A conflict may arise when the same party is responsible for valuing fund assets and also benefits from asset-based fees without independent oversight. To manage this, ASIC guidance suggests creating sufficient structural independence, such as having an accountable valuation function with a reporting line separated from origination incentives.
• Structural conflicts: Often stemming from vertical integration or related-party transactions, misaligned incentives from business structures can give rise to conflicts under RG 181.44 of the Corporations Act 2001 (Cth). Furthermore, this can occur when a fund manager uses a related-party service provider, which may be motivated to prioritise the commercial interests of the corporate group over the best outcomes for investors.

Lender-Transaction Conflicts in Practice

Furthermore, conflicts of interest can manifest in the day-to-day lending decisions made by fund managers. As noted in RG 181.29, a conflict can arise from competing financial interests, personal interests, or business relationships. Ultimately, these situations require careful management to ensure clients and members are treated fairly, a principle highlighted in RG 181.88, and practical examples of how these conflicts can appear in lending transactions are as follows:

• Workout decisions: When a loan is in distress, a fund manager’s interests may diverge from those of the investors. For instance, the manager might be incentivised to avoid recognising a loss to protect performance fees, while the investors’ best interest might be to enforce security or restructure the loan to preserve capital, even if it means realising a loss.
• Fee allocation: Decisions about how fees are structured and allocated can unfairly benefit the manager at the expense of fund members. As a result, a private credit fund operator might be motivated to prioritise its own revenue from fees and interest margins over the returns delivered to the members who carry the underlying credit risk.
• Structuring priority deeds: When multiple lenders are involved in a transaction, the structuring of priority deeds can create a conflict. In addition, if the fund manager or a related entity also has a separate financial interest in the deal, they might influence the loan structuring and documentation to favour their own position over that of the fund’s investors.

Building an Adequate Conflict Management Framework

The Four-Step Framework of Identify Assess Respond & Implement

ASIC’s updated RG 181 outlines a four-step lifecycle for managing conflicts. An AFS licensee should embed these arrangements into its business operations to ensure they are adequate and effective.

The framework involves the following stages:

• Identify: Your arrangements should enable you to identify when an actual or potential conflict of interest arises. This requires systems to pinpoint relevant conflicts based on their general risk, materiality, or seriousness.
• Assess: Once a conflict is identified, your arrangements must allow for its assessment and evaluation. This includes considering the materiality of the conflict and may involve a formal risk assessment to determine an appropriate response.
• Respond: You must decide on and apply a suitable response to manage the conflict effectively. According to RG 181, this also involves monitoring the effectiveness of your response over time and taking remedial action if it is not working as intended.
• Implement: Your arrangements must be fully implemented, monitored, and reviewed to ensure they remain effective. This includes senior management endorsement, staff training, clear accountability, and proper documentation.

Moving Beyond Disclosure to Control & Avoidance Strategies

Under RG 181.78, ASIC clarifies that disclosure alone is often insufficient to adequately manage a conflict of interest. While disclosure remains a valid tool, the updated guidance prioritises the use of control mechanisms or, where necessary, the complete avoidance of the conflict.

Control measures are designed to mitigate the risks associated with an existing conflict. RG 181.74 provides examples of controls that an AFS licensee can implement, as follows:

• Information barriers: Establishing physical or virtual barriers to prevent or restrict the flow of information between different business units.
• Functional separation: Separating business units or teams, including through physical segregation, to minimise the risks of a conflict.
• Trading restrictions: Implementing trading restrictions, such as blackout periods, for staff who may be exposed to conflicts.
• Removal of staff: Removing conflicted individuals from a particular transaction or decision-making process to ensure objectivity.
• Arm’s length engagement: Using independent, third-party service providers for functions like asset valuation to ensure impartiality.

In some situations, avoiding a conflict is the most appropriate response. RG 181.67 states that avoiding a conflict may be the most effective management tool. Ultimately, this involves either preventing the conflict from occurring in the first place or eliminating it once identified.

According to RG 181.69, you should avoid a conflict where:

• The interests of one client are in direct conflict with the interests of another client; or
• Remuneration practices place your interests in direct conflict with the interests of your clients or members.

Documenting Your Arrangements What Evidence ASIC Expects

How to Structure Your Conflicts Register

An AFS licensee must document its arrangements to demonstrate compliance. According to RG 181, a key piece of evidence ASIC expects to see is a conflicts register. Ultimately, this register serves as a formal record of how your financial services business identifies, assesses, and responds to conflicts of interest.

Under RG 181.63(a), your conflicts register should be structured to capture key information for each identified issue. Therefore, a well-structured register should document:

• Identified conflicts: All identified actual and potential conflicts of interest.
• Materiality assessment: An assessment of the materiality or seriousness of each conflict.
• Management response: The response taken to manage the conflict, such as avoidance, control measures, or disclosure.
• Accountability: The individual or team accountable for overseeing the management of the conflict.
• Review dates: The dates of any reviews to ensure the response remains effective over time.

Essential Records for Demonstrating Compliance to ASIC

Beyond maintaining a conflicts register, your conflict management framework must include broader record-keeping to prove your arrangements are adequate. In addition, ASIC may request various forms of evidence during surveillance or an investigation to assess your compliance with your AFS licence obligations.

As outlined in RG 181.63, an AFS licensee should keep essential records that include:

• Reports to senior management: You must keep records of any reports about conflict matters that have been provided to your senior management, board, or relevant third parties.
• Records of disclosure: It is necessary to store copies or records of all disclosures given to affected parties, which includes written disclosures, representative samples, or documented records of oral disclosures, such as any scripts used by staff.

Conclusion

The December 2025 update to ASIC’s RG 181 clarifies the conflict of interest obligations for every Australian financial services licensee, particularly those in the private credit and mortgage fund sectors. AFS licensees are now expected to adopt a four-step framework to identify, assess, respond to, and implement arrangements, with an emphasis on control and avoidance over simple disclosure.

To ensure your conflict management framework meets these updated standards, contact our private lender and non-bank finance lawyers at GRM Law for expert guidance. Our team specialises in assisting private lenders and non-bank financing firms across Australia to achieve compliance and safeguard their operations.

Frequently Asked Questions