ASIC sues Australian Unity for TMD failure

ASIC is suing Australian Unity Funds Management for allegedly failing to ensure retail investors fit the suitable target market for its investment product, the Select Income Fund.

ASIC is looking at the period between 5 October 2021 and 5 October 2023, when Australian Unity, the responsible entity of the fund, made three Target Market Determinations (TMDs) identifying the class of suitable investors for the fund.

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.

ASIC counted 87 occasions of Australian Unity issuing interests in the fund to retail clients without requiring them to submit, as part of their application, a completed questionnaire with answers to questions to determine if they were within the target market

On 220 occasions, ASIC alleged the issuance of interests to retail clients without Australian Unity reviewing submitted questionnaires with answers to questions to determine if they were within the TMDs.

Australian Unity FM self-reported relevant matters to ASIC in September and October 2023.

Australian Unity said in response: "Importantly, the proceedings do not concern aspects of SIF's operational management or the integrity of SIF investment products.  Australian Unity treats all regulatory matters with the utmost seriousness and has assisted ASIC throughout its investigation leading up to the issuing of the proceedings."

Further, Australian Unity said it "remains focused on continuing to offer retail investors access to varied investment opportunities, while meeting related regulatory obligations."

ASIC deputy chair Sarah Court said the Design and Distribution Obligations (DDO) 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," she said.

"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."