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Highlights
- ASIC sues Australian Unity over investor screening issues
- Alleged lapses span two years of fund distribution
- Raises broader implications for ASX200 compliance standards
The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings in the Federal Court against Australian Unity Funds Management (ASX:AYU), alleging a breach of regulatory obligations concerning investor suitability in the Select Income Fund.
Allegations of Inadequate Screening
The regulator claims Australian Unity failed to take adequate steps to ensure that investors in its Select Income Fund matched the profile defined in its Target Market Determinations (TMDs). These determinations were issued between October 2021 and October 2023 and are central to the design and distribution obligations under Australian law.
ASIC alleges that although a questionnaire was provided to potential investors to determine their eligibility within the designated target market, Australian Unity did not begin reviewing the responses until August 2023. More concerning, those responses were not actively used for screening purposes until October 6, 2023, despite continuous fund marketing during the period.
In a further lapse, paper-based applicants were excluded from the questionnaire process altogether until September 2022, whereas online investors received them much earlier. This inconsistency is seen as a significant compliance failure, especially in a regulatory environment increasingly focused on investor protection.
ASIC’s Broader Compliance Message
The core of ASIC’s case revolves around the principle that simply issuing compliance tools, like questionnaires, is insufficient. Regulators expect that companies must review investor input thoroughly to ensure there’s alignment with the product’s risk profile and suitability framework.
ASIC Deputy Chair Sarah Court emphasized that issuers are required to proactively vet investor responses, not just collect them. According to her, the alleged failure on Australian Unity’s part may have exposed some investors to products that did not suit their financial needs or risk tolerance, potentially resulting in financial losses.
Industry-Wide Implications
This legal move adds pressure on fund managers and other financial firms, especially those included in the S&P/ASX200 index, to revisit their compliance protocols. The lawsuit underscores the importance of integrating regulatory responsibilities into the core of fund distribution strategies.
For investors tracking ASX dividend stocks and fund performance within the ASX200, this case serves as a reminder that compliance and governance practices are not just procedural—they are foundational to trust and risk mitigation.
As proceedings unfold, the outcome could set a precedent for how investor screening and product alignment obligations are interpreted and enforced in the future.
