$200 billion industry loaded with danger, regulator fears
ASIC’s warning to private credit funds comes as the regulator unveiled a broader “road map” to stimulate the growth of both private and public capital markets in Australia, including measures to encourage more equity market listings.
While the ASX’s market capitalization has almost doubled over the last decade, the number of listed companies has fallen over this time and the value of equity raised in initial public offerings (IPOs) has fallen.
ASIC has indicated it is keen to reinvigorate the IPO market and said some participants see regulation as a reason for the decline in listings. He encouraged the ASX to look at simplifying future editions of corporate governance principles to ensure they do not deter businesses from listing on the share market.
Longo stated that other developed countries are struggling with similar problems as Australia, and emphasized that the growth of both public and private markets is important because this will help businesses grow and create employment.
“Markets are not an abstract construct,” Longo said. “They represent the money and investment flowing through our economy.”
“These are literally the lifeblood that allows businesses to grow and employ people. To that end, we want to make sure we’re making active choices about how these markets develop, so we can get the markets we want.”
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“The alternative is that technological advances and the opportunism of other countries could make Australia a passive recipient of changes, which may not be for the better.”
ASIC’s findings on private credit were based on its surveillance of 28 private credit funds; the regulator cited several examples of “poor practice”.
It said many funds were not transparent about the interest rates they charge borrowers, there were problems with “poor governance and poorly managed conflicts of interest”, and many funds examined by ASIC had poor valuation practices.
ASIC also raised concerns about what the funds were telling investors about non-performing loans, saying the funds inconsistently defined key terms such as “default” or “credit security”.
Some bank bosses have previously called for tighter regulation of private lending and Australian Banking Association chief executive Simon Birmingham welcomed ASIC’s focus on the sector.
“This appears to be welcome progress towards ensuring private credit has high standards of investor protection and market integrity, while taking steps to increase transparency,” he said.
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