The world’s top financial stability watchdog is examining the potential risks posed by an influx of retail investors into the US$1.8 trillion private credit market, according to a person with knowledge of the matter.

The Financial Stability Board, which convenes central bank governors and finance ministries from the world’s largest economies, is overseeing the assessment through a subcommittee of members that monitors emerging risks to the financial system, the person said, asking not to be identified as the work is private.

Private credit is slated to become the next focus of the FSB’s task force on nonbank data, as regulators globally step up their scrutiny of the ballooning asset class. Private credit funds have been grappling with record redemption requests this year as investors rushed to pull their money amid concerns over loan quality and borrowers’ vulnerability to AI disruption.

The FSB declined to comment.

Bank of Canada Governor Tiff Macklem , who oversees the FSB’s top risk committee, hinted at the work earlier this month when he stressed that “private credit is not suitable for everybody.” He pointed to the potential need for additional “guardrails” to ensure retail investors properly understand constraints on accessing their cash.

Wealthy individuals who sought to pull about US$20 billion from private credit funds this year have only been able to redeem about half of that cash as asset managers have exercised their right to limit withdrawals.

The work around retail investors from the FSB’s Analytical Group on Vulnerabilities is just one of its projects on the asset class. The watchdog’s push to bring more transparency to the market is of greater priority, the person added.

FSB Chair Andrew Bailey, also the governor of the Bank of England , warned of the risks around private credit and its rapid growth in a letter this month. The group is set to release a private credit report next week.

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The subcommittee’s work to assess retail participation is separate from the upcoming report.

Bloomberg.com