ASIC’s paper on Australia’s evolving capital markets has ignited intense debate over transparency in private markets and whether regulatory action is needed to bring greater clarity to this “opaque” sector.
Last month, ASIC released what chair Joe Longo described as one of its “most important pieces of proactive work” – a paper titled Australia’s Evolving Capital Markets: A Discussion Paper on the Dynamics Between Public and Private Markets.
The paper, which seeks to open a discussion on ASIC’s regulatory approach and gather actionable ideas to improve Australia’s capital markets, highlights a clear connection between the increasing role of superannuation in the economy and the growth of private markets – an area where ASIC currently lacks visibility.
The paper highlights that as public markets shrink and “opaque” private markets expand, ASIC is keen to explore how it can make public markets more attractive and enhance transparency in private markets without hindering their evolution.
Answering questions posed by Senator Andrew Bragg at Senate estimates last month, Longo said there are several reasons behind the regulator’s choice to do the paper, including to “shine a light on a section of our markets that we believe is lacking transparency at the moment”.
“As a national markets regulator, I’m concerned about that,” he said.
Denying that ASIC is “agitating for any policy change” – as framed by Senator Bragg – Longo said ASIC is asking Parliament for “more recurrent data-gathering powers”, alongside “other reforms”.
While Longo noted that he could be “more specific” on notice, ASIC’s subsequent answer to the Senate, published this week, fails to provide additional clarity and seemingly contradicts the chair’s words.
“The discussion paper does identify the need for robust data to identify and respond to risks arising in private markets as mentioned by chairman Longo. Apart from this, the paper does not draw conclusions about whether any changes to the regulatory framework are needed and is not advocating for policy change,” ASIC said.
Additionally, in Senate, Longo explained that additional data would put the regulator on par with its international peers.
“This is not about – and I’ve made this very clear – re-regulating the private market space. It is about understanding what’s going on there and, secondly, being very open minded about,” he said.
Pointing to concerns raised by “serious players” like Larry Fink about “what’s going on in these markets”, Longo added that by the end of the year, ASIC should be in a position to determine its next steps.
“What we’re trying to do here is do the work and, by the end of the year, hopefully have something sensible to say about whether there is a need for any additional regulatory interventions aside from the data gathering, which I’m morally certain we do need,” he said.
Fink last month told The Australian Financial Review that he plans to bring a new level of transparency to private markets to make it “much easier to identify risks, much easier to understand how a portfolio can navigate between public and private [markets].”
Calling private assets “peculiar”, Fink stressed that additional data and analytics are an essential element in “how to build private markets”.
Responding to ASIC’s paper last month, alternative investment managers and the broader industry argued that additional regulatory impost would stifle returns in private markets.
Namely, the consensus was that while there is merit in additional disclosure requirements, a heightened regulatory burden could undermine the fundamental appeal of the asset class.
