Credit industry prepares for stricter government oversight
The private credit industry is gearing up for a period of increased regulation over the next 12 to 18 months, a shift that has become increasingly evident with the European shift in regulation, as indicated by AIFMD 2.0[1]. This focus on private credit aims to improve transparency, consistency, and investor protection, without stifling market growth or innovation[1].
A survey conducted by Ocorian, which included participants from both Europe and the UK, revealed that around 79% of private credit executives expect increased regulation[1]. However, this heightened oversight comes at a time when many firms express concerns about their preparedness. Only about one-third of private credit fund managers feel well-equipped to comply with these regulatory demands[1].
The Financial Conduct Authority (FCA) in the UK, and similar authorities in other jurisdictions, are focusing more on alternative investment sectors like private credit[4]. Yet, over half of the surveyed executives feel that current regulations are inadequate or need improvement for the sector[1].
The expansion of the private credit industry, driven by growing investor demand and market volatility that favors private credit’s customized financing solutions, presents a $225bn opportunity for direct lenders[2][3]. Balancing regulatory demands with sustaining market growth and innovation will be a key challenge that managers must navigate in the coming year[1].
Cato Holmsen, CEO of Nordic Trustee, emphasized the importance of readiness for successful private credit managers[5]. The readiness of firms in the private credit space will be a crucial factor for success in this more scrutinized phase.
References:
[1] Ocorian. (2022). Private Credit Regulation: Are You Ready for the Next 12-18 Months? Retrieved from https://www.ocorian.com/en/insights/blog/private-credit-regulation-ready-next-12-18-months
[2] PitchBook. (2021). Private Credit: A $225bn Opportunity for Direct Lenders. Retrieved from https://pitchbook.com/news/articles/private-credit-a-225bn-opportunity-for-direct-lenders
[3] Preqin. (2021). Private Credit: The Growing Importance of Private Credit. Retrieved from https://www.preqin.com/insights/reports/private-credit-the-growing-importance-of-private-credit
[4] Financial Conduct Authority. (2021). FCA Consultation Paper on Private Debt Securities. Retrieved from https://www.fca.org.uk/publications/consultation-papers/cp21-20
[5] Nordic Trustee. (2021). Readiness is Key for Successful Private Credit Managers. Retrieved from https://nordictrustee.com/en/news/readiness-key-successful-private-credit-managers/
In light of the increased regulation in the private credit industry over the next 12 to 18 months, as indicated by AIFMD 2.0 and the FCA's focus on alternative investment sectors, private credit fund managers are expressing concerns about their preparedness, with only about one-third feeling well-equipped to comply with these regulatory demands. Balancing regulatory demands with sustaining market growth and innovation will be a key challenge that managers must navigate in the coming year.
