ASIC sues Aust Unity over DDO failure

The Australian Securities and Investments Commission (ASIC) has initiated court action against Australian Unity Funds Management alleging it acted unlawfully over a target market.

The regulator said it is alleging that Australian Unity failed to take reasonable steps to ensure retail investors were in the target market for one of its investment products.

It said Australian Unity is the responsible entity of the Select Income Fund (the Fund) and between 5 October 2021 and 5 October 2023, it made three Target Market Determinations identifying the class of suitable investors for the Fund. ASIC alleges Australian Unity failed to take reasonable steps to ensure retail investors who invested in the Fund were in the target market.

During the relevant period, Australian Unity gave prospective investors a questionnaire to determine whether a potential ‘non-advised’ investor was within the Fund’s defined target market.

For the first half of the relevant period, the questionnaire was only provided to online applicants. From September 2022, paper applicants were also asked to complete it. However, ASIC alleges none of the questionnaire answers were reviewed until August 2023, and that Australian Unity did not use the answers to screen prospective investors until 6 October 2023, despite issuing interests in the Fund throughout this period.

Commenting on the action, ASIC Deputy Chair Sarah Court said, “The design and distribution obligations are there to help make sure consumers get appropriate financial products aligned with their objectives, financial situation and needs.

“Issuers do not meet these obligations just by issuing a questionnaire. They need to actively review investor responses and assess there is nothing in those responses that is inconsistent with the defined target market for the product.

“In this case, we believe Australian Unity’s failure to review the questionnaires completed by prospective investors exposed people who invested in the Fund to the risk that it was not appropriate for them and to potential financial loss.

“Product issuers must take reasonable steps to ensure that investors are within the target market before they issue interests in a product’, Court said.