Australia’s expanding private credit sector faces increased scrutiny today as the nation’s corporate regulatory body, the Australian Securities and Investments Commission (ASIC), uncovers instances of lenders concealing loan losses.

ASIC has expressed concern over the lack of transparency in the country’s rapidly growing private credit market, valued at approximately $200 billion. The regulator warns that retail investors could be vulnerable to loan defaults, posing potential risks to the broader economy.

These concerns are highlighted in a recent report following ASIC’s “surveillance” of 28 retail and wholesale funds conducted between last October and August.

The report identified several potential issues with private lenders, such as ambiguous reporting and loan terms, insufficient transparency regarding fees and interest rate margins, inadequate credit risk management practices, and weak governance structures.

In response, ASIC has proposed a series of recommendations for the private credit industry. Key among them is the need for more transparent reporting of loan defaults, enabling investors to gain a clearer understanding of fund performance.

The regulator has put forward proposals it wants to see adopted by the private credit industry, including clearer reporting of loan defaults to give investors an accurate picture of how funds are performing.

ASIC highlighted big differences between lenders in the standard of default reporting.

”We are concerned that private credit fund reporting may not provide investors with a true reflection of non-performing and distressed fund assets,” it said.

ASIC chair Joe Longo said most developed countries were grappling with the same changes and that there were major opportunities for Australia.

“This roadmap lays out the choices and future of Australia’s markets. We want our markets – private and public – to grow,” he said.

“That growth means stronger businesses, more jobs and a boost to our economy.

“Strong markets have strong market integrity.

“We want to lay the foundations for managed investment schemes and private markets to sustainably thrive for the future benefit of business and investors.”