ASIC probe into Private Credit is a good thing

ASIC probe into Private Credit is a good thing‍

Private Credit has been operating predominantly in the managed investment scheme space for the past 25 years since the introduction of the Managed Investment ACT and then Corporations ACT 2001.

Whilst ASIC is responsible as the regulator and has been active in ongoing surveillance, we really haven’t had a deep dive into the industry and its, now many participants in the time since.

The growth of the industry in the past 5 years has been exponential with most new entrants coming in as wholesale licensees managing unregistered managed investment schemes. Whilst licensed they can only deal with wholesale/sophisticated investors, but the definition of this category of investor has not changed in the 25 years since the law was enacted.

What we have seen as a result is that the Responsible Entities of these schemes are applying a definition to wholesale investors which is outdated and too broad, resulting in inappropriate investments being taken up by investors that really aren’t capable of assessing the risk of that investment.

As a responsible entity of a retail licenced and registered managed investment scheme, Sydney Wyde provides more consumer protection and disclosure to investors. As a member of AFCA, with a requirement to have PI Insurance of $5.0M and an external compliance committee, retail licensees have more oversight and compensation arrangements in place than their wholesale counterparts.

ASIC specifically states in their fact finding investigation they are specifically concerned with the areas of governance, valuation practices, management of conflicts and fair treatment of investors.

With recent issues in the wholesale licensed mortgage schemes around relying on ‘on completion’ vs ‘as-is’ valuations and non disclosure of fees charged to borrowers to their investors this does create a level of concern which warrants these ASIC questions.

Sydney Wyde, as with other retail licenced schemes have to disclose its valuation policy, only relying on as-is valuations. Fully disclose all fees charged by itself and any other parties associated with the transaction (i.e. brokers/marketers). Have a clear management of conflicts of interest policy and compliance rule, assess investor suitability based on their TMD to ensure all investors are treated fairly when investing.

I believe that a review of the private mortgage credit sector should be welcomed and hope that the outcome is a more robust definition of a truly sophisticated/wholesale investor, so retail investors aren’t mistakenly investing in wholesale products that are inappropriate for their circumstances.

Tim Stoyles
Managing Director
Sydney Wyde

Reference article: https://www.afr.com/companies/financial-services/asic-demands-answers-from-private-credit-as-it-beefs-up-surveillance-20250323-p5lls9

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