On notice: ASIC sharpens its focus on private credit

Overview

Pressure is building on the private credit sector, with ASIC's 2026 enforcement priorities highlighting heightened focus on poor private credit practices,¹ and Reserve Bank of Australia governor Michele Bullock flagging concerns about transparency in the sector, noting that "people don't know where the leverage is" and "they don’t know who is exposed".

Throughout H1 2026, the regulator actively investigated and undertook enforcement action in the sector, characterising it as a "fast growing, yet immature sector, untested in a crisis" that lacks "consistent, well-established practices across governance, transparency, fees and valuations."

This article examines the measures ASIC has taken during the first half of 2026 to deliver on its enforcement commitment and its broader roadmap for Australia's public and private capital markets, as well as the operating conditions driving that scrutiny, and certain dispute and enforcement risks emerging for fund managers. See our previous article for background on ASIC’s initial enforcement priorities.

The Regulatory Catalogue

On 9 December 2025, ASIC published a comprehensive catalogue setting out the key legal obligations and regulatory guidance relevant to private credit fund operators. Designed as a practical compliance tool, the catalogue aims to make it simpler for operators to identify and meet their existing regulatory responsibilities.

The catalogue applies to operators of both retail and wholesale private credit funds in Australia, though its relevance extends to the broader funds management sector. It sits alongside the ten private credit principles, which ASIC issued as an urgent benchmark for firms to evaluate and, where necessary, strengthen their current practices.

The table below summarises the obligations that apply to both retail and wholesale funds, as outlined in the catalogue.

Private credit "on notice"

On 18 June 2026, ASIC placed Australia's private credit sector on notice ahead of 30 June valuations and reporting. Specifically, ASIC:

• Called on funds to ensure asset valuations are current, accurate and grounded in realistic assumptions, warning that valuations failing to reflect current conditions carry a high risk of misinformation and poor investor outcomes;
• Noted its expectations for market participants to proactively challenge assumptions and refresh valuations rather than waiting for formal defaults before reassessing asset values and related risks; and
• Reiterated its expectation that boards, auditors and all participants across the private credit ecosystem assess their practices against ASIC's ten private credit principles and lift standards where necessary, emphasising that these obligations cannot be outsourced.

While ASIC acknowledged some improvement in fund practices since the principles were released in November 2025, it observed that these improvements remain uneven across the market.

Behind the lens: How ASIC is mapping the private credit landscape

ASIC has disclosed that its oversight of the private credit sector involves a multi-pronged approach combining a structured voluntary survey, targeted surveillance activities, and direct engagement with expert panels and market participants.

Survey snapshot

Between 26 March and 14 May 2026, ASIC conducted an eight-week voluntary survey, drawing responses from 22 managers overseeing 52 funds with approximately $76 billion in assets under management.

The survey results highlighted the following features of the current market landscape:

• Credit deterioration is emerging unevenly with pockets of higher defaults, impairments, and loan amendments.
• Redemption requests remain contained in aggregate, with higher activity observed in some feeder funds investing in global private credit managers.
• Leverage and line of credit usage remain minimal.
• Most funds continue to manage liquidity adequately, although buffers are tightening.
• Macroeconomic pressures, including inflation, rising costs and supply disruptions, are affecting borrower performance.
• Softer investor inflows are slowing growth and tightening lending conditions.
• Growth in number of funds has notably slowed.
• Management of concentration risk is variable.

ASIC has emphasised that the findings represent a point-in-time snapshot of domestic market conditions rather than a comprehensive picture of the sector as a whole.

Reading between the enforcement lines

ASIC's regulatory activities suggest the following concerns for the regulator:

• Valuations drifting from reality: Deteriorating borrower conditions are heightening the risk that reported valuations fail to keep pace with underlying economic fundamentals. In sectors such as property development, stress is manifesting through cost overruns, project delays, soft presales, unsold inventory, and tighter refinancing conditions.
• Concentrated bets: Certain portfolios carry outsized exposure to individual developer groups or related assets, amplifying risk where project performance shifts and market conditions contract. Risk management frameworks in parts of the domestic market remain underdeveloped in this regard.
• A transparency gap: Inconsistent definitions of arrears, impairment, loan modifications, and provisioning are undermining comparability across funds and distorting how performance is perceived. Products marketed as stable or low-risk may behave very differently under current conditions, particularly where portfolios are weighted toward construction lending or capitalised interest structures.
• Conflicts under pressure: Current market conditions are increasing conflict risk, particularly where valuation practices, margin allocation and impairment decisions may be affected by misaligned incentives during periods of market stress.

Superannuation fund financial reporting and audit

On 30 September 2025, ASIC published the findings of its first targeted review of financial reports lodged by registrable superannuation entities (RSEs), which was a new reporting requirement for the 2024-25 financial year. The review identified inconsistencies in how unlisted investments were categorised and disclosed, as well as gaps in audit practices.

Specifically, the review found auditors:

• Did not obtain sufficient evidence to justify unlisted asset valuations;
• Did not consistently challenge valuations provided by external fund managers; and
• Applied high materiality thresholds, which can reduce the extent of audit work undertaken, and variances not being investigated.

ASIC has confirmed RSE financial reporting and, in particular, the valuation and disclosure of unlisted investments, will remain a priority within its capital markets surveillance program. Trustees and auditors should expect ongoing regulatory scrutiny in this area.

The interest rate reckoning: from big banks to private credit

On 29 July 2026, ASIC disclosed widespread failures across the banking sector, warning that numerous lenders had been overcharging homeowners by incorrectly calculating interest for borrowers with offset accounts. Reports lodged with ASIC between 1 September 2023 and 31 August 2025 indicate that banks have paid over $55 million in customer compensation for offset account errors, with further remediation expected as institutions continue to assess the full extent of the issue.

Following these findings, ASIC Chair Sarah Court has signalled the regulator's intention to extend its scrutiny to the private credit sector, examining whether similar interest rate miscalculations are occurring among non-bank lenders.

Enforcement trends

DDO stop orders

To date, ASIC has principally relied on DDO stop orders as its enforcement tool in relation to private credit funds, arising from its risk-based surveillance of managed investment schemes.

A summary of interim stop orders issued during 2025 and 2026 (as at the date of this article) is set out below, all of which were subsequently revoked following corrections. The primary basis for these orders were deficiencies identified in Target Market Determinations (TMDs).

While DDO stop orders have been ASIC’s primary tool to date, the regulator has confirmed that multiple enforcement investigations are underway and that it will act where conduct falls short. ASIC is understood to be considering a number of potential enforcement matters that could see it pursuing civil penalty proceedings against private credit funds, as well as action against the funds' officers/directors. Fund managers should anticipate that ASIC’s enforcement posture will intensify in the event that credit deterioration becomes more pronounced and investor/consumer grievances (including redemption related issues) begin to crystallise.

The seeds for private disputes are being planted

Beyond regulatory enforcement, the current environment is creating fertile ground for private disputes and litigation. For example, where investor losses arise from inaccurate valuations or inadequate disclosures, impacted investors may bring proceedings for misleading or deceptive conduct, breaches of the financial services laws, or other causes of action. Class action risk is also a real consideration.

What next for private credit stakeholders?

ASIC's message is clear: the days of regulatory leniency toward poor practices in private credit are over. The regulator is deploying the full breadth of its supervisory and enforcement powers – spanning surveillance, industry engagement, stop orders, and formal enforcement action – to ensure accountability across the sector.

For fund managers and other market participants, the implications are clear. ASIC's stated expectations should be regarded as the minimum standard of compliance, not an aspirational benchmark.

Want to know more?

• ASIC's new enforcement priority on the private credit sector: What you need to know

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