Australian Unity Fined After Court Finds Serious Failures in Retail Product Governance

Key Takeaways

• DDO Enforcement With Teeth: The Federal Court imposed a $4.95 million penalty (AUD 7.125 million), reinforcing that Australia’s design and distribution obligations are enforceable conduct standards, not documentation exercises.
• Suitability Checks Were Optional in Practice: Hundreds of retail investors were able to invest without questionnaires being required or reviewed, despite clear target market restrictions.
• Compliance Culture Under Scrutiny: The Court explicitly criticized Australian Unity’s compliance culture, citing inadequate experience and training of the staff responsible for DDO oversight.
• Investor Harm Risk, Not Hypothetical: Judges emphasized that affected investors were exposed to products potentially misaligned with their objectives, financial situation, or needs.
• Product Governance Is an Ongoing Obligation: Post-breach fixes, including mandatory questionnaires and knock-out questions, did not mitigate liability for earlier failures.

Deep Dive

Australia’s Federal Court has ordered Australian Unity Funds Management Limited to pay a civil penalty of $4.95 million (AUD 7.125 million) after finding the firm failed to properly assess whether a retail investment product was suitable for investors, breaching the country’s design and distribution obligations.

The case centers on Australian Unity’s role as responsible entity of the Australian Unity Select Income Fund, where the Court found that hundreds of retail investors were able to invest without meaningful checks to confirm they fell within the product’s defined target market.

Orders were made by the Federal Court of Australia in December 2025, with detailed reasons released on January 30, 2026. Between October 2021 and October 2023, Australian Unity accepted applications from 328 non-advised retail investors seeking exposure to the Fund. Of those investors, 89 were allowed to invest without being required to complete any questionnaire designed to assess whether they were within the Fund’s target market.

Another 239 investors did complete questionnaires, but Australian Unity admitted it issued interests in the Fund without reviewing those responses. According to the Court, up to 144 of those questionnaires contained at least one answer suggesting the investor may not have been suitable for the product under the Fund’s Target Market Determinations.

Deputy Chair Sarah Court said the failures struck at the heart of the design and distribution framework.

“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,” Court said.

She warned that failing to assess suitability can expose retail investors to inappropriate products and the risk of financial loss, adding that the penalty sends a clear signal to issuers about the consequences of weak distribution controls.

Court Takes Aim at Compliance Culture

In his written reasons, Justice Moshinsky was particularly critical of Australian Unity’s internal approach to compliance. He described the firm’s failures as serious and said there was no satisfactory explanation for how they occurred.

The Court found that responsibility for overseeing compliance with the DDO regime had been given to a project manager who lacked appropriate experience or training. Justice Moshinsky said this reflected poorly on Australian Unity’s compliance culture at the time and suggested the firm did not treat its regulatory obligations with sufficient seriousness.

He also noted that affected investors were exposed to the risk of acquiring a financial product that was not appropriate for their objectives, financial situation, or needs, as well as the risk of financial loss.

Adverse Publicity and Cost Orders

Beyond the financial penalty, the Court ordered Australian Unity to publish an adverse publicity notice and to send that notice directly to impacted investors. This includes investors who were not required to complete a questionnaire, as well as those whose questionnaires were not reviewed despite indicating they may have been outside the target market.

Australian Unity was also ordered to pay the costs of proceedings brought by the Australian Securities and Investments Commission.

Australian Unity has since updated its approach. In October 2023, the firm revised the Fund’s Target Market Determination to require questionnaires to be reviewed before interests are issued. Questionnaires were made compulsory for all prospective investors, and from July 2024 were strengthened with “knock-out” questions designed to prevent investors outside the target market from proceeding.

The decision stands as one of the more pointed judicial critiques of product governance failures under Australia’s DDO regime, reinforcing that target market determinations are not a paperwork exercise but a live obligation that must be actively enforced in practice.

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