The Federal Court has ordered Australian Unity Funds Management Limited (Australian Unity) to pay a $7.125 million pecuniary penalty for breaching design and distribution obligations (DDO) by failing to confirm the suitability of one of its products for retail investors.
As responsible entity of the Australian Unity Select Income Fund (Fund), Australian Unity admitted that it failed to take reasonable steps to ensure that interests in the Fund were only distributed to investors who matched the criteria outlined in its three Target Market Determinations (TMDs) for the Fund.
As a result, hundreds of retail investors were able to invest in the Fund even though the product may not have been suitable for them under those TMDs.
Australian Unity, also known as AUFM, admitted that it issued interests in the Fund to retail clients:
- on 89 occasions without requiring them to submit, as part of their application, a completed questionnaire with answers to questions to determine whether they were within the target market described in the Fund TMDs, and
- on 239 occasions without reviewing submitted questionnaires that had been completed by them to determine whether they were within the target market described in the Fund TMDs.
Deputy Chair Sarah Court said, ‘Australian Unity breached the design and distribution obligations and failed to take reasonable steps to ensure its retail product distribution conduct, in this case, the issuing of interests in the Fund, aligned with its target market determinations.’
‘There is no value to investors if product issuers develop a target market determination for a product but fail to take steps to ensure that those products are distributed consistently with the target market determination.’
In this case, of 328 non-advised investors who applied to acquire an interest in the Fund, 89 were not required to submit a questionnaire to assess their suitability. Of the other 239 who did submit responses, up to 144 of them provided at least one response that suggested they were not in the target market for the Fund.
‘The failure to assess product suitability for investors can expose them to products which are not appropriate for them and create the potential for financial loss.
‘This outcome sends a clear message to product issuers that there are significant consequences for failing to take reasonable steps to ensure that investors are within a product’s target market before they issue interests in the product’, the Deputy Chair said.
His Honour Justice Moshinsky said in his reasons published today that Australian Unity’s ‘failings are serious. Moreover, there is no satisfactory explanation for how they came about.
‘…[T]he explanation is essentially that the person tasked with ensuring compliance with the DDO regime (the DDO Project Manager) did not have appropriate experience or training.
‘This reflects poorly on the ‘compliance culture’ of AUFM at the time. It suggests that AUFM did not take its regulatory obligations sufficiently seriously.
Elsewhere, His Honour observed that specific investors identified in the judgment:
‘...were exposed to the risk that they might have obtained a financial product that was not appropriate to their objectives, financial situation or needs, and to the risk of financial loss…,’.
In addition to the pecuniary penalty, the Court has ordered that Australian Unity publish a written adverse publicity notice and send the notice directly to the last known email or postal address of impacted investors, being those who were either not required to submit a completed questionnaire as part of their application, or whose submitted questionnaires were not reviewed by Australian Unity and included at least one response which indicated that they were not in the target market for the Fund.
Australian Unity has also been ordered to pay ASIC’s costs of these proceedings.
Downloads
Background
Orders were made by the Federal Court of Australia in December 2025, and written reasons were published on 30 January 2026.
Australian Unity is the responsible entity of the Fund and between 5 October 2021 and 5 October 2023, it made three TMDs identifying the class of suitable investors for the Fund.
Australian Unity admitted that it contravened s 994E(3) of the Corporations Act 2001 (Cth).
On 6 October 2023, Australian Unity updated the Fund TMD to include new distribution conditions which require Australian Unity to review responses to questionnaires prior to issuing interests in the Fund to prospective investors. Since October 2023, it has made the questionnaire compulsory for prospective investors and from July 2024, the questionnaires included ‘knock out questions’.
The DDO regime requires financial product issuers and distributors to develop and maintain effective product governance arrangements across the life cycle of financial products. It requires product issuers to make a TMD by, among other things, identifying the class of retail clients that comprise the target market for their products. The maker of the TMD must take reasonable steps to ensure that the product is issued and distributed consistently with the TMD.
