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Closing the gap: FSC sets new industry standards for private credit 

September 10, 2026

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    What you need to know

    • On 26 August 2026, amid mounting pressure on the private credit sector, the Financial Services Council issued a new mandatory Standard 30 and supporting Guidance Note 57 reshaping best practice for private markets and private credit fund managers. The Standard takes effect on 1 July 2027 and is mandatory for FSC Full Members that manage, operate, or hold primary responsibility for investment management, governance, or risk management within private markets. Conventional bank lending by authorised deposit-taking institutions (ADIs) is excluded.
    • For the first time, the FSC has proposed a formal definition of "private credit", bringing much-needed clarity to a term the industry and regulators have long used inconsistently.
    • The Standard is a direct response to ASIC's call in REP 823 for strengthened industry standards and lands amid an escalating enforcement programme of DDO stop orders, active surveillances and investigations into the private credit sector.
    • Private credit managers face additional obligations ranging from robust credit risk frameworks to consistent terminology and timely disclosure of credit deterioration.
    • Non-FSC members should also pay close attention. The Standard is publicly available and is expected to serve as a reference point (in addition to and without being inconsistent with applicable law, regulatory instruments or regulatory guidance) for ASIC, ratings agencies, institutional investors, and superannuation fund trustees when assessing fund manager practices, conducting due diligence, and making investment decisions.

    What you need to do

    • Conduct a gap analysis against each of the Standard's seven obligation pillars (outlined below), using the practical examples in the Guidance Note as your implementation benchmark.
    • Align your credit risk terminology with the Guidance Note's model definitions - an area ASIC has already flagged as inconsistent across the sector.
    • Review valuation governance arrangements, particularly the independence of valuation approvals from origination and asset management, and ensure triggers for out-of-cycle reassessments are documented and operational.
    • Assess fee disclosure practices end-to-end, including borrower-paid fees, net interest margin arrangements and related-party economic benefits, and review conflicts management processes across credit decision-making, loan structuring, enforcement and recovery.

    Closing the gap: FSC sets new industry standards for private credit

    Private markets are under mounting pressure, with recent high-profile collapses sharpening interest on the private credit sector. As outlined in our previous article, ASIC has confirmed poor practices in private credit as a key enforcement priority for 2026, with several investigations underway and surveillances across both wholesale and retail funds well advanced.

    It is against that backdrop that, on 26 August 2026, the Financial Services Council (FSC) issued FSC Standard No. 30, Private Markets Best Practice Principles (Standard), alongside FSC Guidance Note No. 57, Private Markets Best Practice Guidance (Guidance Note). The Standard in particular is mandatory for full members of the FSC.

    This article outlines the FSC’s new formal definition of “private credit”, the Standard’s seven key obligation pillars, the role of the Guidance Note as a practical benchmark, the scope and limitations of the new framework, and the disputes and regulatory investigation and enforcement implications for private credit fund managers.

    "The FSC recognises that rapid growth in the private markets sector has created inconsistent practices, which creates risk for consumers, however industry adherence to the Standard will reduce these risks.

    The FSC's industry standard will be mandatory for funds management and superannuation members, but will also be a publicly available resource for all market participants. We encourage all fund managers and superannuation funds to apply the Standard and related Guidance Note in their businesses, and for ratings agencies to consider the principles when they are rating investment and private credit products."

    - Blake Briggs, CEO, Financial Services Council

    "Private credit" definition

    FSC's formal definition of "private credit" brings much-needed clarity to a term that has lacked a consistent industry meaning, given in particular that ASIC's existing definition in REP 814 casts a relatively wide net. The focused approach to the definition gives market participants a clearer benchmark as regulatory scrutiny of the sector continues to intensify. A comparison of the two definitions is set out below.

    ASIC Definition (REP 814) FSC Definition (Standard 30) 
    "For the purposes of…suggesting where ASIC could focus its attention, we define 'private credit' broadly as non-bank lending that is not publicly traded or widely issued publicly."

    "Private credit means lending activities conducted through private market structures where debt instruments, loans, credit exposures or similar financing arrangements are not publicly traded.

    For the avoidance of doubt, private credit may include privately negotiated lending, credit or financing exposures, including warehouse facilities and exposures to securitisation vehicles, where those exposures are not publicly traded or widely issued publicly."

     

    The carve-out of ordinary lending activities conducted by an ADI is deliberate and seeks to distinguish between fund-based private lending (the central focus of both the Standard and ASIC's regulatory oversight) and traditional bank lending.

    The Standard's seven pillars

    The Standard establishes obligations across seven pillars. A summary of the key obligations is set out below.

    CategoryObligations
    1. Governance and Accountability
    • Governance sits at the heart of the Standard. Managers are expected to have documented governance arrangements in place that are proportionate to the nature, scale, complexity, structure, investor base and risk profile of their activities, and that ultimately support fair outcomes for investors.
    • Where conflicts could arise – particularly across origination, valuation, liquidity management, leverage and credit risk management – the Standard calls for effective oversight and challenge of material decisions. Risk events should be escalated promptly, and records should be sufficient to demonstrate that governance is operating as intended. Remuneration and incentive structures also come within scope.
    • For managers of Indirect Investment Structures, the focus shifts to oversight of the underlying fund manager.
    • Private Credit Managers face an additional layer, with the Standard requiring a documented credit governance framework addressing underwriting standards, approval thresholds, independence in relation to credit risk management, monitoring and escalation processes.
    • Managers are expected to conduct a periodic independent review or assurance of their governance, valuation, liquidity, leverage, conflicts, credit risk, distribution and disclosure arrangements.
    2. Credit Risk Management  
    • Credit risk management is a cornerstone of the Standard for Private Credit Managers. Managers should maintain documented arrangements proportionate to their funds' nature, scale, complexity and risk profile, supporting robust credit assessment, approval, risk classification, monitoring and management across the full investment lifecycle. Timely identification and escalation of risks is key – for instance, material credit deterioration (including impairment or negative revaluation), must be recognised without inappropriate delays.
    • Managers should use clear, consistent terminology for material credit metrics (e.g. arrears, defaults, impairments, watchlist status, restructures, waivers, concentration risks and LVR), with transparent calculation methods that investors can readily understand.
    • Investors must receive clear information about the health of the loan book, and material credit deterioration should be recognised on a timely basis. Default classification, restructures, waivers, enforcement, and recovery actions must be clearly disclosed and subject to appropriate governance oversight, effective challenge, and conflict management.
    • For Indirect Investment Structures, managers are expected to understand and oversee the basis and any material limitations of the underlying manager's due diligence, monitoring and reporting.
    3. Fees, Distribution and Investor Transparency
    • Transparency is a central theme of the Standard. Managers are expected to provide clear, accurate and timely disclosure covering fund structures, exposures, risks, fees, costs and economic features – including where complex arrangements such as SPVs, warehouse facilities, offshore vehicles or related-party structures are involved. These structures should never be used to obscure material information from investors.
    • On fees and costs, managers should disclose all material fees and economic benefits clearly and consistently, including who receives them, how they are calculated and how they affect returns.
    • Marketing and distribution practices should align with the fund's investment strategy, risk profile and target market, and should be revisited when material risk events occur. Ongoing reporting should keep investors informed of performance, risks and significant changes over time.
    • Private Credit Funds face additional requirements, including disclosure of borrower-paid fees, credit-related income, net interest margin arrangements and any other economic benefits flowing to the manager or its related entities.
    4. Valuation Governance  
    • Managers should maintain documented valuation arrangements that are proportionate to the fund's nature, scale, complexity, structure and investor base, and designed to deliver fair, consistent and transparent outcomes for investors. These arrangements should set out methodologies, key assumptions, valuation frequency, reassessment triggers and any material limitations in inputs.
    • Independence is a key theme. Personnel responsible for originating or managing assets should not have sole authority to approve valuations for those assets, and external or independent input should be considered where uncertainty is elevated, conflicts exist or the valuation is material to investor outcomes.
    • Methodologies should also be applied consistently across funds holding comparable exposures.
    • Where a fund offers redemption rights, valuation processes should support fair outcomes between transacting and remaining investors.
    • For Indirect Investment Structures, managers may rely on the underlying manager's reporting and asset-level valuations, subject to appropriate due diligence.
    • For Private Credit Funds, the Standard clarifies that valuation refers to the value of the credit exposure itself and not the underlying collateral, which is treated as an input only.
    5. Liquidity Risk Management  
    • Where a fund offers redemption rights, managers should maintain documented liquidity risk management arrangements that are proportionate to the fund's nature, scale, complexity, structure, investor base, asset cashflows and liquidity profile, and designed to support the fair and orderly operation of those rights.
    • Managers should ensure redemption rights are aligned with the fund's actual liquidity profile, identify available liquidity management tools, and have processes in place to monitor and escalate material liquidity stress. Investors should receive clear information about their redemption rights and practical liquidity position, including any limitations or differential treatment.
    • On distributions, the Standard draws a firm line: distributions should be consistent with governing documents, disclosed investment strategy and investor communications, and should not be presented as income or yield where they are funded from capital, borrowings or new subscriptions. Where material risk events may affect the sustainability of distributions, managers should assess whether distributions remain supportable and whether investor communications need to be updated.
    • Notably, even funds without redemption rights are not exempt and are still expected to address liquidity considerations in their design, governance and disclosures.
    6. Fund Leverage and Refinancing Risk  
    • Managers are expected to maintain arrangements to identify, monitor and govern leverage that materially affects, or could reasonably be expected to affect, fund-level risk, liquidity, valuation, refinancing risk, distributions, redemptions or investor outcomes. Ordinary-course asset-level financing falls outside scope unless it has a material impact at the fund level.
    • Material leverage and refinancing risks should be subject to governance oversight, with managers assessing ongoing consistency with the fund's investment strategy, governing documents and investor disclosures.
    • Investors should receive sufficient information to understand the nature, purpose and material risks of any leverage employed. Leverage should not materially alter a fund's stated risk profile unless consistent with the investment strategy and subject to appropriate governance and disclosure.
    • For Private Credit Funds, the Standard goes further, requiring disclosure of the types of credit activity or lending purpose to which fund-level leverage is exposed, such as construction, development or land banking.
    7. Conflicts of Interest  
    • Managers should maintain documented conflicts arrangements, consistent with applicable law and proportionate to their activities, designed to identify, assess, manage, monitor and disclose actual, potential and perceived conflicts of interest.
    • Material conflicts should be documented, escalated through governance channels and subject to effective oversight and challenge, with avoidance the appropriate course where a conflict cannot be adequately managed. The Standard flags particular conflict types for attention, including related-party arrangements, cross-fund transactions, co-investments, affiliate fee arrangements, valuation processes, asset transfers and staff personal interests.
    • Disclosure is critical with generic statements alone insufficient, and investors should receive enough information to understand the nature and potential impact of material conflicts. Fair treatment should be supported where multiple funds pursue similar strategies or differential treatment exists, with independent valuation or review considered for material related-party or cross-fund transactions.
    • For Private Credit Managers, the Standard notes additional conflict risks in credit decision-making, including loan structuring, refinancing, covenant waivers, restructures, enforcement and recovery.

     

    "The FSC acknowledges ASIC's ongoing supervisory work and its collaborative approach to uplifting private credit sector practices. The FSC and our members have responded in good faith to ASIC's call for enhanced industry standards, to help address the legitimate concerns ASIC and the Reserve Bank of Australia have towards the private credit market."

    - Blake Briggs, CEO, Financial Services Council

    The Guidance Note sets practical benchmark

    The Guidance Note supports the Standard's implementation by providing context, practical examples and model definitions. It does not create additional obligations; managers may adopt different approaches where those approaches are consistent with the Standard's objectives. That said, the Guidance Note is likely to serve as a practical benchmark of good industry practice, particularly in the context of regulatory scrutiny.

    Of particular note are the model definitions for key private credit metrics, including "default", "arrears", "impairment", "watchlist" and "LVR". These definitions directly address one of ASIC's core concerns: its eight-week survey of the sector (covering 22 managers, 52 funds and approximately $76 billion in assets under management) found that inconsistent terminology was reducing comparability across funds and distorting how performance is perceived. Managers may adopt different definitions where appropriate, provided they are applied consistently and explained to investors.

    The Guidance Note also offers good-practice guidance on:

    • Valuation frequency (at least quarterly in most circumstances);
    • Defining triggers for valuation reassessment outside normal cycles;
    • Providing transparent reporting of manager remuneration; and
    • Applying independent oversight to related-party lending and cross-fund transactions.

    Scope and limitations

    The Standard is mandatory for FSC Full Members that qualify as Private Markets Managers (as defined within). It applies to each Private Markets Fund for which the manager has primary investment management, governance or risk management responsibility, where the fund is domiciled in Australia.

    However, several important limitations should be noted:

    • Gaps in coverage. Not all major private credit players are FSC Full Members. While there will be stakeholders to whom this Standard does not technically apply, as we note below it is likely that ASIC and other key stakeholders will have regard to its principles to set best practice standards and expectations, and therefore non-Full Members will be well served to have regard to the concepts in the Standard in any event.
    • Wholesale fund carve-out. Where a fund is offered solely to professional investors, the Guidance Note states it is not intended to prescribe how those funds apply the Standard's principles. Such funds may rely on their own governance, due diligence, monitoring and risk management frameworks, which is a significant carve-out given the capital deployed through wholesale channels.
    • Indirect structures. For fund-of-funds, multi-manager and mandate-based arrangements, the Standard's practical reach is diluted. Implementation of the Standard depends on underlying manager reporting, contractual arrangements and oversight processes, particularly where the manager does not directly control the underlying assets and has limited information rights regarding the underlying fund. Where underlying managers are not FSC Full Members, compliance rests on due diligence and monitoring rather than direct obligation.
    • Offshore flexibility. Managers may attest to compliance by confirming adherence to substantively equivalent offshore frameworks, recognising that many Australian funds invest through offshore vehicles subject to their own regulatory regimes.
    • Qualified disclosure obligations. Several disclosure requirements are subject to applicable law, confidentiality constraints and commercial sensitivity, meaning managers may disclose information on an aggregated, anonymised or qualitative basis rather than with full specificity.

    Compliance is underpinned by an annual attestation requirement under FSC Standard No.1: Code of Ethics and Code of Conduct (FSC Standard No.1), and the FSC retains the ability to conduct enquiries into how the Standard is being applied in practice.

    The Standard is a meaningful step forward, but its evident limitations in a rapidly expanding private credit landscape suggest this is far from the final chapter in the evolution of private markets regulation in Australia.

    Disputes and regulatory investigation implications

    The Guidance Note could serve as an evidentiary benchmark in an ASIC investigation, enforcement proceeding or investor litigation, especially given the credit risk terminology in the model definitions, valuation triggers and disclosure practices. As we noted in our previous article, ASIC is understood to be considering civil penalty proceedings against private credit funds and action against their officers and directors, with its enforcement posture expected to intensify as credit deterioration becomes more pronounced and investor/consumer grievances, including redemption-related issues, crystallise.

    Private dispute risk is also relevant, with investor losses from inaccurate valuations, delayed credit deterioration recognition and escalation, or inadequate disclosure potentially forming the basis for claims for misleading or deceptive conduct, breaches of financial services law, or other causes of action. Class actions are a risk too. Managers should also treat their FSC Standard No. 1 attestation records (including underlying or supporting documents) as potentially discoverable, and prepare their gap analysis against the Standard’s seven pillars accordingly.

    What this means for private credit fund managers

    The Standard, Guidance Note and ASIC's enforcement trajectory together set a clearer, and higher bar for private credit fund managers. A failure to comply may carry both regulatory and commercial consequences.

    With a transition period running to 1 July 2027, now is the time for fund managers to conduct a thorough gap analysis of their current practices against the Standard and Guidance Note. Key areas of focus should include valuation reassessment triggers, alignment of credit risk terminology with the Guidance Note's model definitions, fee disclosure (particularly around borrower-paid fees, net interest margins and related-party arrangements), and conflicts management across credit decision-making.

    Non-FSC members should of course also have regard to these concepts; the Standard is publicly available and is expected to serve as a reference point for ASIC, ratings agencies, institutional investors, and superannuation fund trustees when assessing fund managers and making investment decisions.

    Want to know more?

    Authors: Andrew Kim, Partner; Edmond Park, Partner; Nicholas Mavrakis, Partner; Jennifer Schlosser, Partner; Caroline Smart, Partner; Josh Krechman, Senior Associate; Ahmed El-Jaam, Lawyer and Radhika Tamhane, Lawyer.together

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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