How ASIC Reforms Impact Your Private Credit Fund Regarding Annual Audited Financial Reports

Introduction

In November 2025, the Australian Securities and Investments Commission (ASIC) proposed extending the requirement for annual audited financial reports from retail registered managed investment schemes to wholesale funds. This regulatory shift directly impacts non-bank lenders and private credit funds by demanding greater transparency and stricter valuation practices to address the growing interconnectedness of financial services.

This article explains the proposed audit and financial reporting obligations for alternative lending institutions so you can prepare for these compliance changes. It provides an audit-readiness checklist, outlines the necessary valuation evidence standards, and details how to align investor reporting and marketing claims with audited outputs to protect the borrower and the managed investment scheme.

Interactive Tool: Check If Your Private Credit Fund Is Audit-Ready

Understanding the Proposed ASIC Reforms for Private Credit Funds

The Push for Annual Audited Financial Reports

In November 2025, the ASIC proposed a significant change for wholesale managed investment schemes. The proposal involves extending the requirement for annual audited financial reports, a rule that currently applies to retail registered schemes, to include wholesale funds.

This reform aims to enhance transparency and provide greater assurance to investors and the market regarding the financial position, assets, and risks of wholesale funds. At present, there is no statutory obligation for wholesale funds to prepare or audit their financial reports at the fund level.

A primary driver for this proposal is ASIC’s concern about the accuracy of asset valuations within the private credit fund sector. The market’s reliance on what are often unaudited asset values has been identified as a key risk. Mandating audited financial reporting is intended to support greater valuation confidence and integrity across the industry.

Why Wholesale Funds Are Under Increased Scrutiny

The private credit sector has seen substantial growth, expanding by over 500% from $35 billion in 2015 to $213 billion by the end of 2024. This rapid expansion has drawn increased attention from ASIC, which considers the sector to be relatively immature and untested in a market-wide stress scenario.

A key concern is the heavy concentration of private credit fund investments in real estate, with a large portion allocated to higher-risk construction and development projects. ASIC views this concentration as a potential vulnerability, particularly when combined with inconsistent practices across the sector. The growing interconnectedness between the non-bank sector and the traditional banking system can also amplify these risks.

ASIC’s surveillance of private credit funds has highlighted several areas with inconsistent practices, including:

• Governance and transparency.
• Fee and net interest margin treatment.
• Valuation methodologies.
• Management of conflicts of interest.
• Liquidity and credit risk controls.

Key Compliance Impacts on Private Lenders & Non-Bank Finance Companies

Increased Operational Demands & Compliance Costs

The proposed extension of audit requirements to wholesale funds will directly affect the operational capacity and financial planning of private lenders and non-bank finance companies operating any managed investment scheme.

The introduction of mandatory financial reporting is expected to increase compliance costs across the sector. For managers who operate multiple wholesale funds, the audit process will likely consume significant finance team resources over extended periods to ensure asset valuations meet the regulator’s accuracy expectations.

Stricter Scrutiny on Fund Documentation & Governance

To address the governance and valuation weaknesses identified during its sector surveillance, ASIC will more closely examine fund documentation. Fund managers must demonstrate effective governance and oversight to meet these heightened expectations. Key areas of focus include:

• Independent Oversight: Establishing independent or active trustee boards is important, especially where the investment manager and trustee are part of the same corporate group.
• Conflict Management: Funds need clear processes to identify, manage, or avoid conflicts of interest, particularly concerning related-party transactions and asset allocation between different funds.
• Valuation Policies: Documentation must clearly outline valuation methodologies, ensuring they are applied consistently and independently to produce fair and timely results.
• External Audits: Preparing for periodic external audits will be necessary to provide independent verification of asset valuations and financial positions.

Establishing Valuation Evidence Standards for Your Private Credit Fund

The Importance of Reliable Asset Valuations

To satisfy the regulator’s demand for greater confidence in unlisted asset values, reliable and fair valuations are essential because they allow investors to assess a fund’s performance accurately and make informed decisions. In addition, inaccurate valuations can harm both investors and market integrity. Furthermore, valuations are critical because they:

• Determine transaction prices for entering and exiting a fund, ensuring fairness for all investors.
• Directly impact the calculation of management and performance fees.
• Help protect against hidden risks and potential misconduct.

Recent reviews of superannuation funds by both ASIC and APRA have revealed weaknesses in valuation governance, particularly where trustees relied on information from external fund managers. As a result, these findings underscore the broader regulatory focus on ensuring that valuations are robust, transparent, and well-documented across the financial services industry.

Implementing Consistent Valuation Methodologies

To prepare for mandatory audits and rectify the inconsistent approaches to metrics like loan-to-value ratios observed by ASIC, private credit funds must adopt clear valuation practices.

A private credit fund should implement a framework that includes:

• Clear policies and processes: Establish and document clear valuation methodologies, policies, and processes that produce fair valuations.
• Regular valuations: Conduct valuations on a regular basis, such as monthly or quarterly, to ensure they remain timely.
• Independent oversight: Ensure valuations are conducted with appropriate independence, especially when they influence the calculation of management and performance fees.
• Periodic external audits: Incorporate periodic external audits to verify the fairness and transparency of the valuation process.

How to Align Investor Reporting & Marketing Claims With Audited Outputs

Ensuring Transparency in Fee & Margin Disclosures

Alongside valuation accuracy, the transparency of fee and margin disclosures is a key focus of the proposed reporting regime. Consequently, the regulator is expected to closely examine how returns are presented to investors, ensuring all costs associated with a private credit fund are clear and accurately reported.

Fund managers must avoid opaque fee structures that can obscure the true cost of an investment. To address the poor practices identified in recent surveillance—such as failing to quantify interest rates charged to the borrower or clarify the manager’s right to retain certain fees—disclosures should clearly detail all income streams, as follows:

• management and performance fees;
• borrower-paid fees retained by the manager;
• net interest margins; and
• origination or default-related fees.

Ultimately, this level of transparency allows investors to make informed decisions and compare funds effectively. This ensures that reported returns are not misleading.

Matching Marketing Materials to Actual Portfolio Risks

All marketing materials and promotional claims for a private credit fund must be balanced, accurate, and consistent with the fund’s audited financial position and risk profile. ASIC has observed instances of inconsistent reporting and disclosure documents that actively downplay portfolio risks, which can mislead investors.

Furthermore, promotional claims must not overstate a fund’s strategy or performance. For example, ASIC has taken action against a superannuation fund for making misleading statements about its climate commitments. The fund claimed to be removing all investment in carbon emissions by a certain date, when its actual target was to achieve net-zero emissions, which is a different objective that allows for offsetting.

This highlights the importance of precise language in all investor-facing communications. A private credit fund must ensure that its marketing materials accurately reflect its audited performance, risk exposures, and liquidity to comply with design and distribution obligations. In addition, aggressive marketing or poorly explained products can lead to unsuitable investors participating in the fund.

An Audit-Readiness Checklist for Private Credit Funds & Family Offices

Assessing Current Financial Reporting Capabilities

Private credit funds should begin preparing for the proposed audit requirements by evaluating their current financial reporting frameworks, which involves mapping internal data systems to confirm they can produce recurrent, reliable, and auditable information. Ultimately, a key goal is to build digital reporting capabilities that can meet heightened standards for financial services.

In addition, the assessment should review whether the finance team has the capacity to handle the increased workload associated with a mandatory annual audit. Key areas for data collection and reporting readiness include:

• Portfolio composition and associated risks.
• Fee and net interest margin practices.
• Valuation governance and methodologies.
• Processes for identifying and managing conflicts.
• Liquidity alignment and stress testing.
• A documented credit risk framework.

This preparation is vital to ensure internal data can withstand independent audit scrutiny and reduce reliance on unaudited financial information.

Upgrading Governance & Conflict Management Frameworks

Strengthening governance and conflict management is a critical step in preparing for increased ASIC scrutiny, and a private credit fund must have clear and documented processes for identifying, managing, or avoiding conflicts of interest. This is particularly important for related-party transactions and when allocating assets across different funds operated by the same manager.

To enhance oversight, funds should consider establishing independent or active trustee boards, especially where the investment manager and trustee belong to the same corporate group. Other important actions include:

• Ensuring governance structures promote sound decision-making, compliance, and accountability;
• Documenting a standardised credit risk management framework that covers loan origination, monitoring, impairment, and default processes; and
• Implementing independent oversight of credit, default, and impairment procedures.

These measures directly address the regulator’s concerns regarding poorly managed conflicts and weak governance within the sector.

Conclusion

ASIC’s proposal to mandate annual audited financial reports for wholesale funds requires private credit fund operators to upgrade their compliance, governance, and valuation frameworks. Preparation involves adopting clear valuation standards, strengthening internal controls, and aligning all investor reporting with audited financial information.

With these regulatory changes proposed, proactive preparation is important. If you require assistance with your audit-readiness or want to confirm your private credit fund meets ASIC’s expectations, contact our regulatory compliance lawyers at GRM Law for guidance on your financial reporting and governance frameworks.

Frequently Asked Questions

Disclaimer: This is general information only and is not legal advice. For advice on your circumstances, contact GRM LAW.