Federal Court hits Aust Unity with $7m penalty for DDO breach

Yasmine Raso

Senior Journalist, Financial Newswire

30 January 2026

The Federal Court of Australia has imposed a $7.125 million pecuniary penalty on Australian Unity Funds Management, after the firm failed to comply with design and distribution obligations (DDO) related to the suitability of one of its investment funds for retail investors.

The Australian Securities and Investments Commission (ASIC) first initiated court action against Australian Unity mid-last year, after it was found that the fund manager allowed over 300 retail investors to invest in the Australian Unity Select Income Fund even though they may not have matched the criteria outlined in three Target Market Determinations (TMDs) issued for the fund.

According to the corporate regulator, Australian Unity admitted to allowing investments in the fund:

• on 89 occasions without requiring applicants 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’s TMDs.

“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,” ASIC Deputy Chair, Sarah Court, said.

“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 Federal Court’s orders were made back in December last year, with Australian Unity also instructed to “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” and pay ASIC’s cost of the court proceedings.

His Honour Justice Moshinsky said there was no “satisfactory explanation” for the fund manager’s “serious failings”.

“[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,” he said.

“This reflects poorly on the ‘compliance culture’ of AUFM at the time. It suggests that AUFM did not take its regulatory obligations sufficiently seriously… [investors] 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.”