Deciphering ASIC's Private Markets Review: An opportunity to engage

What’s happening?

Yesterday, the Australian Securities & Investments Commission (ASIC) released its discussion paper on the evolving dynamics between public and private markets.

The discussion paper canvasses key and emerging issues relating to public and private markets, an overview of international market developments and regulatory initiatives, and ASIC’s preliminary views on some of these matters. It does not advocate for specific policy or regulatory change. We view this as a valuable opportunity for market participants to proactively engage to get the future policy balance right.

In addition to the discussion paper, the ASIC also published a research report on public equity markets, which has informed its approach.

This memo summarises our Private Capital team’s key takeaways for our private capital clients.

The discussion paper and the research report can be accessed via the ASIC’s website: 25-021MR Advancing Australia’s regulatory roadmap for public and private capital markets | ASIC

Above all else

Needless to say, there will be much focus on micro and macro issues raised by the ASIC in the discussion paper.

There will also be a lot of misfocus. And noise.  

For us however, what it presents, above all else, is a once-in-a-cycle opportunity to engage thoughtfully and constructively with Australia’s capital markets regulator to get the policy settings right going forward - so that sponsors, superannuation funds, corporates and other market participants can operate effectively and grow our capital markets in the process.

Key points for private capital

No real surprises for private market participants – but more than expected on public markets and superannuation

For private market participants, the discussion paper does not contain any real surprises. The approach set out by ASIC is largely as anticipated in our prior memo on the review, including that any changes to regulation are likely to be made on a measured and incremental (and consultative) basis. The discussion paper also supports our expectation that ASIC will take its cues for focus (and action) from other regulated private markets (including the United Kingdom and the United States).

Perhaps where the discussion paper has surprised is in its breadth and depth of discussion on public markets (and the premise for their relative decline) as well as the role of Australia’s domestic superannuation sector. In particular, the discussion paper highlights the growing (and increasingly influential) conduit that the superannuation sector has become between public and private markets (a somewhat distinctive characteristic of Australia).

Protecting retail investors

The discussion paper makes clear that ASIC will prioritise ensuring retail investors are appropriately protected when participating in the private markets. Private credit products are called out specifically in the discussion paper as an area of concern and focus for the ASIC. This does not come as a surprise to us given past hints that ASIC has given around its retail investor concerns.

It follows that sponsors who may be sourcing capital directly from Australian retail investors will, we expect, feel more acutely (relative to those that are sourcing from wholesale channels) the impacts of any proposed regulatory changes. The discussion paper specifically canvasses conflicts of interest, governance, and valuation practices as risks to the fair treatment of investors - these will be key focus areas for ASIC going forward.  It is not clear whether ASIC’s focus in these areas will be limited to those that are directly tapping retail investors for funding or whether they will also seek to engage with sponsors who are sourcing funding from wholesale investors (including APRA-regulated superannuation funds investing on behalf of mum and dad investors).

Private market processes – and leaks

The discussion paper affirms ASIC’s commitment to surveillance as a priority, with a particular focus on significant auction and sale processes and transactions within private markets. The effect of leaks on the integrity of the broader capital markets is identified as a concern that ASIC will actively target and prosecute to ensure market participants remain accountable for maintaining the conditions necessary for strong and well-functioning capital markets.

We expect that this emphasis on surveillance will also serve the dual purpose of discovery directed towards enhancing ASIC’s own understanding of the private markets.

Information harvesting

One of the underlying themes of the discussion paper is the lack of information and transparency that ASIC considers it has relative to other offshore regulators and relative to information it can gather on Australia’s public markets.  According to ASIC, data transparency helps regulators: (i) supervise conduct to support market integrity; and (ii) monitor the broader financial system to address potential systemic risks. In the words of ASIC, “Complete, better quality and more timely data on private markets is needed to support policy development and to supervise the sector”.

We expect that this is one of the areas that ASIC wants to try and address in the short term and is likely to be at the forefront of any initial regulatory changes that may be forthcoming. 

Cues from abroad

The discussion paper provides strong pointers towards ASIC taking its cues from peer regulators in other jurisdictions, as well as from other Australian regulator bodies, reflecting a broader trend of coordination and cooperation among regulators in key markets.

Because of this, it will become increasingly important that market participants ensure consistency of approach in managing their engagement and touch points across regulators, and across jurisdictions.