ASIC Report 823: What the Evolving Capital Markets Roadmap Means for Private Lenders20 min read

Introduction

On 5 November 2025, the Australian Securities and Investments Commission (ASIC) released Report 823, outlining a regulatory roadmap for Australia’s evolving capital markets. Following an earlier discussion paper on the dynamics between public and private markets, the regulator is increasing its focus on private credit to address the growth and risks in the Australian private credit market.

Non-bank finance providers must now align their internal frameworks with these expectations—a key aspect of regulatory compliance—to uphold market integrity. This article explains the discussion paper response for private lenders so you can adjust lending operations, financial reporting, valuation instruction letters, and borrower fee policies.

Interactive Tool: Check If Your Private Lending Operations Are ASIC-Ready

The Growth of Private Credit & Shift Between Public & Private Markets for Private Lenders

The Rapid Expansion of the Private Market

The Australian private credit market has undergone a period of substantial growth, prompting increased attention from the Australian Securities and Investments Commission (ASIC). According to ASIC’s Report 823, the private credit market expanded by over 500%, from $35 billion in 2015 to $213 billion by the end of 2024. This rapid expansion highlights a significant structural shift in the capital market.

A notable feature of this growth is the concentration of capital within a specific sector. A high proportion of private credit in Australia is directed towards real estate, including higher-risk construction and development projects. Furthermore, ASIC has identified that this over-concentration poses potential risks, particularly at the expense of funding for enterprise growth in other areas like the small and medium enterprise (SME) sector.

Declining Public Listings & The Move Toward Private Capital

The expansion of the private market has occurred alongside a decline in public listings. This trend is influenced by both cyclical and structural factors. A key driver is the widespread availability of private capital, which many companies now see as a more accessible and flexible funding source.

Companies are increasingly turning to private capital for several reasons, including:

• ‘Patient capital’: It is often viewed as a funding source better suited for long-term investment horizons.
• Less restrictive conditions: Businesses may find the private market more appealing as it typically involves fewer governance obligations and less public scrutiny compared to the requirements for publicly listed entities.

This dynamic between public and private markets is a central theme in ASIC’s evolving capital markets roadmap.

ASIC Report 823 & Core Principles for Non-Bank Finance Providers

Fostering Market Integrity Through Ten Key Principles

In Report 823, ASIC established ten core principles to guide the private credit sector and lift industry standards. These principles, anchored in existing regulations, provide a benchmark for all participants to assess and improve their practices. Consequently, ASIC expects non-bank finance providers to adhere to the following standards:

• Stewards of other people’s money: Responsible entities and trustees must act as stewards of investor capital. Their decisions should be fair and consistently prioritise the best interests of investors.
• Organisational capability: Firms are required to maintain adequate human, financial, and technological resources. This ensures they can operate efficiently, honestly, and fairly, with the necessary expertise in areas like credit, risk, compliance, and valuations.
• Transparency: Investors must have access to timely and clear information. This includes details about investment strategy, exposures, valuation methods, risks, and fees to support informed decision-making.
• Design and distribution: The design and distribution of financial products must be fair, transparent, and targeted to an appropriate market. This mitigates the risk of mis-selling unsuitable or high-risk products.
• Fees and costs: All fee structures should be fair and transparent. This allows both investors and borrowers to have a clear understanding of the total costs involved and helps prevent complex arrangements that obscure the manager’s total remuneration.
• Conflicts of interest: All conflicts of interest must be identified, disclosed, and managed effectively or avoided. This includes managing related-party transactions and ensuring fair allocation of assets across different funds.
• Governance: Effective governance structures, processes, and personnel are essential for promoting sound decision-making, compliance, and accountability. This includes ensuring independent oversight from boards.
• Valuations: The process for valuing assets must be fair, timely, and transparent. Valuations should be conducted regularly with appropriate independence and supported by clear and consistent methodologies.
• Liquidity: Liquidity risk must be disclosed and managed effectively. Redemption terms should align with the fund’s portfolio liquidity, and stress testing practices should be disclosed to investors.
• Credit risk: A disciplined approach to credit risk management is required across the entire loan lifecycle. This involves standardised credit assessment, regular monitoring of borrower performance, and documented policies for impairments and defaults that can necessitate enforcement and recovery.

Addressing ASIC Concerns Around Wholesale & Retail Fund Practices

ASIC’s surveillance of 28 retail and wholesale private credit funds revealed that while the sector is growing quickly, it remains relatively immature and largely untested in a system-wide stress scenario. The review identified inconsistent practices across the industry, with some failings raising questions about compliance with financial services laws. This includes the obligation to provide financial services efficiently, honestly, and fairly. Furthermore, key areas of concern highlighted by ASIC’s findings include:

• Governance and transparency: The surveillance uncovered mixed governance practices, including a lack of independent or active oversight, particularly where the responsible entity, trustee, and investment manager were part of the same corporate group. Transparency gaps were also noted in disclosures related to investment strategies, portfolio risks, and valuation policies.
• Fees and marketing: Fee disclosures were sometimes found to be poor, misleading, or complex, making it difficult for investors to understand and compare costs. ASIC also observed aggressive marketing and poorly explained products, which increased the risk of products being distributed to unsuitable investors.
• Valuations and risk management: There was a heightened risk from inconsistent valuation methodologies, a lack of independent valuations, and subjective judgements. Additionally, practices for managing liquidity and credit risk were often underdeveloped, with many funds lacking documented policies for defaults, impairments, or stress testing.

Essential Operational Adjustments for Private Lenders

Strengthening Governance & Managing Conflicts of Interest

Private lenders must review their governance frameworks to ensure they support sound decision-making and accountability. ASIC expects to see clear independence between the management and board of fund operators. This includes establishing well-defined roles, committee mandates, and escalation processes to promote a culture of compliance and risk awareness.

A critical component of strong governance is the effective management of conflicts of interest. ASIC’s surveillance has identified this as an area requiring significant improvement. Consequently, lenders should have a board-approved conflicts of interest policy that addresses both actual and perceived conflicts. Key areas of focus include:

• Related-party transactions: such as loans to affiliated entities or asset transfers between funds.
• Capital stack exposure: where a manager holds multiple positions in the same borrower across different funds.
• Fee-driven incentives: that may influence investment strategies to the detriment of investors.
• Allocation decisions: to ensure fair and equitable treatment of all investors across different funds.

Frameworks should enable the proper identification, management, and recording of conflicts, with clear protocols for escalation and independent oversight.

Updating Credit Risk Management & Borrower Fee Policies

ASIC has found that many private credit funds lack written policies for managing credit impairments, defaults, or provisioning—all critical components of effective loan management. To align with regulatory expectations, lenders need to apply standardised credit assessment and monitoring frameworks. This involves documenting credit decisions, regularly reviewing borrower performance, and establishing clear protocols for early signs of distress. Furthermore, independent oversight of credit, default, and impairment processes is also essential.

Fee structures are another area of focus, as ASIC expects full transparency to give investors and borrowers a clear view of total costs. Fee arrangements that are complex or opaque, often a result of poor loan structuring and documentation, can obscure the true cost to investors and may create misalignments of interest. Therefore, lenders should review their policies, particularly concerning:

• Borrower-paid fees: where ASIC has indicated a preference for all fees to flow to the fund rather than being retained by the manager.
• Net interest margins: ensuring any intermediary vehicles and retained margins are fully disclosed.
• Frequent fee events: such as fees for loan extensions or refinancing, which may influence how a deal is structured.

All fees and income streams must be clearly disclosed, including management fees, performance fees, and origination margins, to provide a complete picture of the manager’s total remuneration.

Refining Marketing & Distribution Practices

Marketing and distribution practices must be refined to ensure products are offered only to investors who understand the associated risks. This requires aligning product distribution with the fund’s target market determination (TMD) and implementing strong compliance oversight to prevent mis-selling.

Offer documents must provide clear and unambiguous details about the investment strategy, underlying assets, and potential risks. Specifically, ASIC has identified several key areas for improvement:

• Risk disclosure: which should prominently feature information on liquidity, valuation, and credit risks in all marketing materials.
• Portfolio alignment: ensuring the fund’s positioning accurately reflects its risk profile, especially for strategies involving high-risk assets.
• Investor eligibility: which requires robust processes to verify that investors meet the criteria for the fund, such as confirming wholesale client status for wholesale-only funds.

Ultimately, lenders are responsible for the distribution of their products and must ensure that marketing materials are balanced, accurate, and suitable for the intended audience.

Enhancing Financial Reporting & Valuation Practices for Private Credit Funds

Implementing Independent Valuation Methodologies & Instruction Letters

The Australian Securities and Investments Commission (ASIC) expects valuations to be fair, timely, and transparent. Investors depend on accurate valuations to assess performance and make informed decisions, and inconsistencies can undermine market integrity. In its surveillance, ASIC identified heightened valuation risk as a key compliance issue for private credit funds.

To meet regulatory expectations, fund operators should implement clear and consistent valuation policies. Key practices include:

• Independent valuations: Using independent valuations where possible, especially for illiquid or complex assets, with periodic external audits. Valuations should be conducted regularly, such as monthly or quarterly.
• Clear methodologies: Disclosing the valuation methodologies used and ensuring they are applied consistently. This includes having clear processes for credit ratings.
• Impairment monitoring: Regularly monitoring for impairment triggers and having clear procedures for assessment, escalation, and reporting.
• Functional segregation: Ensuring there is a separation of duties between teams responsible for originating deals and those responsible for ongoing valuations.

Improving Investor Reporting & Transparency

ASIC has observed wide variations in portfolio reporting practices across the private market. To build investor trust and allow for better comparison between funds, more comprehensive and consistent disclosure is required.

Fund managers should provide investors with regular and timely updates on material information. Reporting should clearly define and consistently use common terms such as “investment grade”, “senior secured”, and “loan-to-value ratio”. Key areas for improved disclosure include:

• Loan and portfolio composition.
• Portfolio concentrations.
• Arrears and defaults.
• Distribution policies and the source of funds for distributions.
• Valuation approaches and liquidity risks.

Managing Liquidity Risk & Redemption Terms

Effective liquidity risk management is essential for aligning a fund’s operations with investor expectations, particularly for funds holding illiquid assets. ASIC requires fund managers to manage this risk effectively to ensure the fair treatment of all investors and promote confidence in the financial system.

Private credit funds must have policies and procedures for managing liquidity, including the ability to conduct regular stress testing. Disclosures to investors should be clear about how liquidity risk could impact them. Important practices include:

• Disclosing redemption terms, including any liquidity gates.
• Conducting regular stress testing to assess the fund’s resilience.
• Ensuring the source of funds for distributions is sustainable, stemming from cashflows generated by underlying assets rather than from new investor capital.

Future Regulatory Reforms & Data Reporting Requirements

The Upcoming Data Gathering Pilot & Enhanced Transparency

The Australian Securities and Investments Commission (ASIC) has identified significant data gaps that limit its visibility over the private market. According to Report 823, ASIC lags behind international peers in accessing the data needed to supervise private capital funds, assess risks, and understand interconnections within the financial system. As a result, this lack of data makes it difficult to monitor conduct and determine how private capital might respond in a system-wide stress scenario.

To address this, ASIC plans to initiate a data-gathering pilot program. The pilot, scheduled for the 2026-27 financial year, will involve a small sample of retail and wholesale funds. Ultimately, this initiative is designed to help calibrate baseline data needs and inform future reform options, such as:

• establishing a recurrent data collection power for ASIC; and
• improving information sharing between government agencies.

Potential Changes to Wholesale Client Tests & Financial Reporting

Following its review of the evolving capital markets, ASIC has recommended several legislative reforms to the government to enhance the regulatory framework for managed investment schemes. These proposals aim to improve market integrity and investor protection, particularly within the wholesale funds sector.

Key recommendations for potential changes include:

• Notification of wholesale funds: Requiring operators to notify ASIC upon the establishment of a wholesale fund. This would give the regulator visibility of all funds in operation and trigger recurrent data reporting obligations.
• Audited financial reports: Extending the requirement for annual audited financial reports, which currently applies to retail funds, to include wholesale funds. This change would provide greater transparency and assurance regarding the financial position and assets of these funds.
• Increased wholesale client thresholds: Amending the wholesale client tests to increase the financial thresholds. ASIC noted that the percentage of the adult population captured by the test grew from 1.9% in 2002 to 16.2% in 2021, suggesting the current thresholds may no longer reflect the original policy intent.

Conclusion

ASIC’s Report 823 provides a clear roadmap for Australia’s evolving capital markets, addressing the rapid expansion of the private market and the changing dynamics between public and private markets. In response, private lenders must make essential adjustments to their governance, valuation practices, financial reporting, and risk management frameworks to meet heightened regulatory standards.

To ensure your operations are aligned with these new expectations, it is important to assess your internal frameworks and compliance protocols. Contact the private lender and non-bank finance lawyers at GRM LAW to assist you in updating your lending operations, fee policies, and disclosure documents to comply with ASIC’s evolving capital markets agenda.

Frequently Asked Questions