Securitisation Compliance Checklist for Australian Non-Bank Lenders & Warehouses21 min read

Introduction

The Australian securitisation market has grown steadily since the Global Financial Crisis, as non-bank lenders compete to provide financing to small to medium-sized enterprises (SMEs) and consumers. Following the Banking Royal Commission between 2017 and 2019, non-banks captured a larger portion of the sector from traditional banks, increasing the volume of RMBS and prompting private credit funds to lend capital through securitisation warehouses.

As non-bank lending grows, any lender or investor involved in a warehouse facility faces the challenge of meeting strict regulatory obligations to maintain financial stability and avoid enforcement action. This article explains securitisation compliance for Australian non-bank lenders and warehouse providers so you can understand the legal requirements shaping the private credit sector.

Interactive Tool: Check Your Securitisation Compliance Risk

The Growth of Non-Bank Lending & the Securitisation Market in Australia

The Rise of Non-Bank Lenders & Private Credit Funds

The Australian lending landscape experienced a significant shift following the Banking Royal Commission, which took place between 2017 and 2019. The commission led to the imposition of stricter compliance and governance rules on traditional banks, weakening their dominance in the financing market. As a result, this created an opportunity for non-bank lenders and private credit funds to capture market share.

Non-bank lenders emerged as an alternative financing solution, particularly for small and medium-sized enterprises (SMEs) that found it difficult to secure funding from traditional lenders. Ultimately, non-banks provided much-needed capital to a previously underserved segment of the market by offering:

• quicker processing times; and
• security options other than residential property.

Key Asset Classes Driving the Securitisation Market

Historically, the Australian securitisation market has been dominated by Residential Mortgage-Backed Securities (RMBS). While RMBS still represents the majority of the market, its share has declined in recent years as other asset classes have grown in prominence.

The growth in non-bank lending has led to increased issuance of Asset-Backed Securities (ABS) supported by a more diverse range of collateral. Key asset classes driving the expansion of the ABS market include:

• Auto and equipment finance: This sector has seen substantial growth, with non-bank lenders increasing their issuance of ABS backed by these loans.
• Personal loans and credit cards: Unsecured lending, such as personal loans and credit card receivables, has also become a growing segment for securitisation.
• Unsecured SME lending: Non-bank lenders are increasingly providing and securitising unsecured loans to SMEs, further diversifying the assets available in the securitisation market.

The Securitisation Warehouses for Private Lenders & Credit Funds

The Structure of Securitisation Warehouses

A securitisation warehouse uses a standalone legal vehicle known as a Special Purpose Vehicle (SPV) to hold assets. This structure removes the assets from the balance sheet of the originator, such as a non-bank lender, which separates the legal ownership of the assets from the bankruptcy risk of the originator.

The SPV pools homogenous assets, most commonly residential mortgages, to diversify risk and reduce the volatility of cash flows. To raise funds, the SPV issues notes to investors, which are structured into different layers or tranches of varying risk. The typical tranches in a securitisation warehouse include:

• Senior tranche: This is the highest-ranking tranche with the most protection against losses. It is typically funded by a bank, which may also act as the arranger for a future public securitisation.
• Mezzanine tranche: Positioned below the senior tranche, this layer is often funded by alternative investors and private credit funds. This opportunity for non-bank financing grew after the Global Financial Crisis (GFC) as banking regulations changed.
• Equity tranche: This is the first-loss piece and is usually held by the loan originator. This requirement ensures the originator has “skin in the game,” which helps to align their interests with those of the warehouse investors.

Opportunities & Risks for the Investor

For an investor, securitisation warehouses present a range of opportunities, particularly for private credit funds providing mezzanine finance. These facilities are the precursor to public asset-backed securities and are used by a lender to accumulate a sufficient volume of loans before they are issued in public markets. Key opportunities for the investor include:

• Attractive risk-return dynamics: As a type of private credit, these investments are not readily tradeable and therefore offer an illiquidity premium. Margins on mezzanine finance are often 1.5 to 2.0 percentage points higher per year than those on public term transactions with similar credit ratings.
• Floating rates: The majority of securitisation warehouses have floating interest rates. This structure benefits from higher returns in a rising rate environment and has low interest rate duration.
• Short tenor: Warehouse financing is short-term, typically with a tenor of 12 to 24 months. This limits the investment’s sensitivity to credit spread duration.
• Revolving facilities: These are generally revolving facilities, which allows an originator to roll the facility at prevailing market prices. This can create a long-term relationship and lets an investor access attractive returns for several years.

However, an investor must also consider the associated risks. A detailed approach involving legal due diligence is required to assess the originator, the underlying loan pool, and the deal structure. The main risks of investing in securitisation warehouses are:

• Credit risk: The investment’s value depends on the creditworthiness of the underlying assets. Defaults in the collateral pool will directly affect the performance of the warehouse.
• Liquidity risk: Securitisation warehouses are not publicly traded and lack a liquid secondary market. Liquidity is generally only available when the facility matures, and facilities may be extended during periods of market volatility.
• Market risk: While considered private credit, the value of these securities can still move in response to changes in the market, the economic environment, and investor sentiment.
• Operational risk: This type of investing is operationally intensive. It requires extensive support for managing documentation, legal requirements, and capital calls.
• Interest rate risk: The coupon paid on a floating-rate investment will vary as reference rates change. These rate movements can also impact the performance of the underlying assets, including prepayment rates and arrears.
• Prepayment risk: If borrowers repay their loans ahead of schedule, it affects the expected cash flows. While the originator can often top up the warehouse to limit this impact, it may not always occur.

Beyond these risks, investors must examine the specific terms of each warehouse deal to ensure adequate protection. Key considerations include:

• Intercreditor terms: The agreement defines the rights of each lender. Aggressive terms may give the senior lender consent rights on amendments and waivers, disadvantaging the mezzanine lender.
• Enforcement rights: These are the enforcement and recovery rights of the financiers if the warehouse underperforms. A mezzanine investor must understand what actions the senior lender can enforce without their consent.
• Financial strength of the originator: An investor should assess the originator’s ability to rectify any deterioration in the warehouse’s performance by adding subordination or repurchasing receivables.
• Exit provisions: It is important to determine if a mezzanine lender can exit the facility if necessary without triggering an amortisation where the senior lender is repaid first.

The Funding Lifecycle of a Non-Bank Finance Company

Initial Senior Financing & Establishing a Warehouse Structure

A non-bank finance company typically begins its funding journey with senior financing on its balance sheet. This initial debt has a claim over the company’s entire asset base, including its loan pool. Because it is provided at an early stage in the non-bank lender’s lifecycle, this form of financing comes at a higher cost.

The next step involves establishing an off-balance-sheet funding vehicle known as a securitisation warehouse. This structure provides financing for the non-bank to originate new loans. The lender sells the loans it creates into the warehouse, which has several benefits:

• Bankruptcy-remote status: The warehouse is bankruptcy-remote from the corporate entity.
• Lower risk: This separation lowers the risk for the credit investor financing the facility.
• Reduced cost: The reduced risk results in a lower cost of financing compared to on-balance-sheet debt.

While the ultimate goal is to have a bank provide senior financing for the warehouse, specialist credit investors and private credit funds often supply the initial capital. This gives the non-bank lender time to build its loan portfolio and establish a performance history, which are important for securing bank funding later.

Transitioning to Bank Funding & Capital Debt Markets

The introduction of bank funding into the warehouse structure marks the third step for a non-bank lender. This transition materially decreases the cost of debt, as bank financing is available at a much lower rate than funding from private sources.

Even with a bank as the senior funder, the warehouse requires a mezzanine lender to create the most efficient capital structure. This role is typically filled by private capital from an investor who takes a more junior position and assumes greater risk than the bank.

For a non-bank finance company that grows large enough, a fourth step is available: accessing the securitisation debt capital markets. This progression further lowers financing costs compared to a warehouse facility. In addition, it provides the non-bank lender with greater diversity in its funding options.

Essential Compliance Checklist for Non-Bank Lenders

Managing Hardship & Debt Collection Practices

As part of their overall regulatory compliance, originators involved in securitisation must maintain compliant hardship practices within their servicing processes. Following a May 2024 report, ASIC highlighted shortcomings in how lenders support customers experiencing financial hardship and has taken action against some for related contraventions.

In addition, debt management and collection practices also came under scrutiny, with ASIC listing them as a strategic enforcement priority for 2025. This led to a probe into misconduct in the sector, signalling an ongoing focus on servicing practices for any Australian lender.

Design & Distribution Obligations

The product design and distribution obligations (DDO) have been a key compliance focus for any lender originating assets for securitisation. These obligations have applied to consumer credit since October 2021, and ASIC has been active in enforcement.

ASIC has indicated that appropriate design and distribution processes remain a high priority for compliance by taking actions since the regime began, including:

• Initiating civil penalty proceedings for alleged breaches of DDO provisions; and
• Issuing numerous stop orders.

Scam Prevention & Anti-Money Laundering Reforms

A scam prevention framework was established through legislation in February 2025 to protect individuals and small businesses. As a result, market participants in the securitisation sector should monitor for sector-specific codes that impose mandatory scam prevention obligations.

Furthermore, significant changes to the anti-money laundering and counter-terrorism financing (AML/CTF) regime took effect from 31 March 2026. These reforms required significant updates to existing AML/CTF programs and procedures for all participants in the non-bank lending industry, ranging from originators to investors.

PPSA Reforms & Small to Medium Bank Reform

Comprehensive reforms have been proposed for the personal property securities (PPS) regime, which will impact all aspects of PPSA security and PPSR registration. While intended to simplify the framework, these Proposed reforms to the Personal Property Securities Act have the potential to impact all aspects of a securitisation, from asset origination to transaction-level requirements.

In addition, the Council of Financial Regulators made several recommendations in July 2025 to improve competition in the small and medium bank sector. These recommendations included improving access to funding markets like securitisation, which could ultimately affect the competitive landscape for both bank and non-bank lenders.

Regulation of Private Markets & Consumer Data Right

ASIC has increased its focus on private markets, including private credit, which is highly relevant to the securitisation sector. Following a report in September 2025, the regulator identified concerning behaviours, leading to ASIC’s private credit reforms which call for enhanced standards of conduct from market participants.

Meanwhile, the consumer data right (CDR) regime is also being expanded to apply to non-bank lenders. Consequently, these lenders are required to comply with data-sharing obligations on a phased basis from 2026 onwards.

Climate Reporting & AFS Licence Relief

A mandatory climate reporting regime has applied since 1 January 2025 for many large Australian businesses, including non-banks. Securitisation market participants may be affected in two main ways:

• Directly, if they are required to report; or
• Indirectly, if they must provide emissions data to financiers.

Additionally, relief for securitisation entities from holding an Australian Financial Services (AFS) licence was due to expire on 1 April 2026. However, ASIC proposed to remake the legislative instrument, ASIC Corporations (Securitisation Special Purpose Vehicles) Instrument 2016/272, to extend this exemption for a further five and a half years.

Financial Stability & Macroprudential Policies Impacting Non-Bank Lenders

The Impact of Loan Serviceability Buffers

In October 2021, the Australian Prudential Regulation Authority (APRA) increased the minimum serviceability buffer for residential mortgages from 2.5 per cent to 3 per cent. This policy change reduced the maximum loan size available to borrowers, particularly those seeking to borrow near their full capacity.

Early evidence suggested that this led to a slight increase in the share of high loan-to-income (LTI) lending by non-banks. This shift may have occurred as some borrowers turned to the non-bank sector to secure their desired loan amounts.

However, the full impact is difficult to assess due to the typical six-to-twelve-month lag between loan origination and securitisation. During this period, non-bank lenders responded to the policy change as follows:

• some adopted the increased buffer; and
• others continued to use their own internal serviceability criteria.

Managing Interest-Only Lending Limits

APRA implemented limits on interest-only (IO) mortgages in 2017 to address risks in the housing market. Following this, interest rates on IO loans rose for both banks and non-bank lenders, although the initial increase was smaller for non-banks. Ultimately, the share of IO lending declined across both sectors, with a less pronounced reduction among non-banks.

During this period, non-bank lending standards did not weaken. Instead, these lenders demonstrated an overall improvement in loan quality while the macroprudential measures were in place by:

• reducing the proportion of their IO lending with high loan-to-income ratios, especially for investor loans; and
• decreasing their share of lending with high loan-to-valuation ratios (LVRs).

Conclusion

The Australian securitisation market provides a critical funding channel for non-bank lenders through structured warehouse facilities, driving competition and growth in private credit. To operate successfully, any lender or investor must manage a detailed checklist of compliance obligations and adapt to evolving financial stability policies.

The evolving regulatory landscape for non-bank lending and securitisation warehouses requires careful management to avoid compliance issues. For expert guidance on your financing structures and obligations, contact our private lender and non-bank finance lawyers at GRM LAW to discuss your needs.

Frequently Asked Questions