Changing Regulation in the Australian Private Capital Sector

What should a company Board understand about the dynamics around changing regulation in the Australian Private Capital sector?

Introduction

There is no doubt that the Australian Private Capital sector has enjoyed a remarkable rise in popularity over the past decade. Recently, this proliferation of private market opportunities has captured regulatory attention.

In February this year, the Australian Securities and Investments Commission (‘ASIC’) issued a discussion paper regarding the dynamics between Australian public and private markets, indicating a clear signal toward ASIC’s deeper scrutiny of private market activities.

There is a perception in the financial services industry that private market offerings are increasingly targeting retail and less sophisticated wholesale investors, requiring closer regulatory scrutiny, particularly in private credit.

As the regulatory environment shifts, boards of Private Capital funds, whether private equity, venture capital, or private credit funds should ask: is our current compliance, governance, and disclosure approach still fit for purpose in 2025?

What is driving ASIC’s focus on Private Capital?

Private markets have increasingly drawn the attention of institutional investors, particularly Australia’s $4.1 trillion superannuation sector. With more capital flowing into less transparent, less regulated private investments, ASIC is concerned about systemic risks, market fairness, and investor protection.

The regulator has stated it wants greater visibility, for example on valuation practices, conflicts of interest, and deal structures in Private Capital. ASIC’s latest messaging flags that the line between public and private markets is blurring and with that, the governance standards applied in each will begin to converge.

Put simply: ASIC isn’t just watching from the sidelines anymore.

A new regulatory landscape for Private Capital

The year 2025 has already brought or foreshadowed several major developments that private equity and wholesale Australian Financial Services Licence (‘AFSL’) holders should consider, for example:

• Mandatory Merger Control Regime: From July 2025, with full implementation in 2026, Australia will move to a new, mandatory pre-merger notification regime. This marks a step-change in how Private Capital deals, especially those involving foreign funds will be assessed by the Australian Competition and Consumer Commission (‘ACCC’).

• FIRB Scrutiny: The Foreign Investment Review Board (‘FIRB’) has adopted a harder line on foreign-backed private equity, particularly on tax integrity. FIRB approval now routinely includes stringent tax conditions, affecting both timelines and deal certainty.

• ASIC Reporting Reforms: ASIC’s rewrite of derivative and transaction reporting rules began rolling out in late 2024, with more changes to take effect by October 2025. These rules don’t just apply to banks, some wholesale Private Capital funds may find themselves captured under updated definitions or subject to counterparty disclosures.

Each of these examples point to the gradual convergence of public market standards and FIRB, ACCC and ASIC related regulated Private Capital compliance and reporting.

Why boards and AFSLs must not ‘Set and Forget’

In public markets, governance frameworks are well-established, for example board charters, audit and risk committees and ASX continuous disclosure protocols. In Private Capital, governance frameworks are far less prescribed.

Some AFSLs and fund managers still rely heavily on internal counsel only, infrequent governance reviews, and focus on a ‘deal-first’ mindset. This older style Private Capital approach now carries elevated risk.

Boards and AFSL holders must move from compliance as an afterthought or ‘nice to have’ to compliance as a core enabler of responsible investing, compliance and reporting. Regular reviews of fund governance frameworks, for example compliance plans, independent board members or advisors, and stronger investor reporting protocols are fast becoming best practice - not just optional extras.

The compliance challenge and the opportunity

Many Private Capital firms operate lean governance functions. This is understandable: regulatory complexity can seem at odds with entrepreneurial capital. But as scrutiny intensifies, these firms must decide whether they want to react to change or lead it.

Working with experienced governance professionals such as chartered governance professionals, chartered secretaries, regulatory lawyers, or risk consultants, can help firms scale their compliance functions proportionately, without bloating the business with ‘compliance for compliance’s sake’. With efficient governance structures in place, boards can spend more time creating value and less time ‘firefighting’ with a compliance function that may no longer be fit for purpose in the new regulatory environment.

What should Private Capital boards consider?

To respond effectively to this shifting environment, AFSL Boards and Compliance Committees of private funds should consider:

• Appointing external governance specialists to governance, board or investment committees: A ‘fresh set of eyes’ can often highlight legacy risks.

• Improving transparency: Even if not legally required, enhanced governance reporting or alignment with institutional grade practices can enhance the AFSL holder and fund’s reputation.

• Conducting a regulatory risk gap analysis: For example, are you or your funds caught by ASIC’s new reporting rules, or the merger control regime?

• Reviewing fund documentation and fund-related agreements: Are your compliance representations up to date with new and emerging requirements?

Can I support your AFSL or fund through this transition?

As a Chartered Governance Professional with decades of experience across listed, private and not-for-profit boards, I understand the unique challenges of applying fit-for-purpose governance principles in fast-moving, deal-driven environments. Whether it’s joining your compliance committee or advisory board, or reviewing your internal governance frameworks, I’m available for a no-obligation discussion about how I can help your company, AFSL or fund, stay ahead of the Private Market compliance curve.

Conclusion

The world of private capital is changing, and Australia is no exception. AFSL boards and fund managers must now operate in a more regulated, scrutinised and accountable environment.

But with change comes opportunity. Those who invest in stronger governance today will likely enhance reputation, attract better investors and have improved governance outcomes inline with ASIC’s emerging Private Capital compliance requirements.

Let’s talk about how I can help you enhance your compliance, governance and regulatory strategy so you can focus on growing your fund with confidence and in full compliance with changing laws.

https://www.andrewsmcneil.com/