Australia’s corporate regulator is warning non-bank lenders and superannuation funds of stronger regulatory action if it does not see improvements in compliance from the opaque private credit and equity sectors.
The outgoing chair of the Australian Securities and Investments Commission, Joe Longo, has released a roadmap for how the watchdog plans to boost investment in the nation’s public and private markets while strengthening their integrity.
The regulator wanted to be a backer, not a blocker of investment, Mr Longo said before an address to the National Press Club on Wednesday.
“This roadmap lays out the choices and future of Australia’s markets. We want our markets – private and public – to grow. That growth means stronger businesses, more jobs and a boost to our economy,” he said.
The roadmap, which was accompanied by three reports on the sector, is the latest stage in a major piece of work being conducted by ASIC amid a decline in initial public offerings and concerns about a lack of transparency in the growing private credit and equity markets.
Private credit funds are estimated to have grown by more than 500 per cent in the past decade.
ASIC says there are positives to the growth of private markets, such as increasing the availability of “patient”, long-term capital.
But while some participants demonstrated strong practices, ASIC also witnessed many examples of poor practices that risked eroding confidence in the sector and hindered its development.
Commissioner Simone Constant said it was clear increased oversight of private markets was essential.
“ASIC will continue its surveillance and enforcement work in private credit to ensure compliance with the law. If we do not see material improvements, we are prepared to pursue stronger regulatory action,” she said.
ASIC’s roadmap promised to provide new regulatory guidance to clarify fund managers’ obligations and improve industry standards.
The recent collapse of managed investment schemes First Guardian and Shield Master Fund highlighted how failures in private market products could be devastating to Australian consumers.
About 12,000 Australians lost up to $1.2 billion in retirement funds, prompting ASIC to engage with the government on law reform to weed out bad behaviour in the sector.
ASIC called for the government to give it more tools to supervise funds, including data collection and independent auditing of wholesale funds.
The regulator will also continue its work on reforming public markets and up its scrutiny on troubled stock exchange operator ASX.
The value of equity raised in public listings has fallen by 82 per cent in the past decade, with ASIC saying a lack of confidence in the share market operator was a significant factor.
The Australian Securities Exchange has been under pressure over a series of system outages amid its bungled overhaul of its clearing and settlement infrastructure.
“Australia’s public markets must be open to modernisation, innovation and reform so that Australia remains competitive and attractive to investors and enterprise,” ASIC said in a report released on Wednesday.
ASIC in October gave the green light to US-based market operator Cboe to provide listing competition to ASX by allowing an alternative exchange in Australia.
But Cboe threw a spanner in the works at the weekend when it announced it was putting its Australian arm up for sale.
ASIC vowed to work closely with Cboe through the sale process to find a suitable buyer for Cboe Australia.
The Australian Banking Association, the Association of Superannuation Funds of Australia and the Financial Services Council welcomed ASIC’s continuing work to strengthen oversight of private markets.
“Industry agrees with ASIC’s assessment that there is a spectrum of practice, and that during this period of rapid growth in the sector robust minimum standards are necessary to maintain regulator and consumer confidence in the industry,” Financial Services Council CEO Blake Briggs said.
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