“Vanguard apologizes to its customers for these errors, which were unintentional. Vanguard recognizes the importance of accurate product and marketing information in helping consumers make informed investment decisions,” the fund manager said.
Earlier on Wednesday, the Federal Court handed down a judgment fining Vanguard $12.9 million for contravening Australia’s financial services laws.
According to court documents, Vanguard will not only have to pay a hefty fine, but also post a “Notice of Vanguard Misconduct” on its website for a period of 12 months.
The court first found Vanguard guilty of breaching the Financial Services Act in March. At the time, he explained that the fund manager did so by making false or misleading statements about the Vanguard Ethically Conscious Global Aggregate Bond Index Fund in 12 product disclosure statements, a press release, documents on his website, an interview published on YouTube. , and a presentation given at an event for fund managers and then published online.
Although Vanguard admitted most of the Australian Securities and Investments Commission’s (ASIC) allegations, according to the original decision, the parties remained at odds over a narrow range of issues regarding liability.
“By Vanguard’s own admission, it misled investors on a number of its claims,” ASIC’s Sarah Court said in March.
“In this case, Vanguard promised its current and potential investors that the product would be screened to exclude bond issuers with significant business activities in certain sectors, including fossil fuels, when this was not always the case.”
On Wednesday, Vanguard reiterated its cooperation with ASIC throughout this matter, which began in 2021.
“No financial loss has been noted for investors,” said the fund manager, emphasizing that payment of the fine will not be borne by Vanguard Australia investors.
The fund manager also assured that following an independent review of relevant internal processes, it had “strengthened its procedures, governance, technology and training to reflect the high standards that investors expect from the products and services of Vanguard.
Although the court ruled in favor of ASIC, it also criticized aspects of the allegations made by the regulator, including the presence of “conceptual flaws” in its submission to the court.
ASIC first publicly announced it had commenced civil proceedings against Vanguard in July last year.
At the time, the regulator said the Vanguard Ethically Conscious Global Aggregate Bond Index Fund and the Bloomberg SRI Index included issuers that violated applicable ESG criteria. For the index, this included 42 issuers that collectively issued at least 180 bonds, and for the fund, at least 14 issuers that collectively issued at least 27 bonds.
ASIC alleged these bonds exposed investors’ funds to fossil fuel-related investments, including those with activities related to oil and gas exploration.
In its response to these allegations, Vanguard admitted to identifying and reporting a breach to the regulator in early 2021 in relation to product disclosure of the Vanguard Ethically Conscious Global Aggregate Bond Index Fund and ETF.
“Although the fund was managed by Vanguard in accordance with the index methodology, Vanguard identified that the descriptions of the exclusion screens published by the index provider and in Vanguard’s product disclosure statement were not not detailed enough,” the investment manager said in 2023.
“At the time, the description of the exclusion filters did not provide a sufficiently detailed explanation of why some debt issuers lacking research coverage were still included in the benchmark. As a result, the portfolio may have exposure to certain securities that investors did not reasonably expect.
Vanguard added that as soon as the disclosure weakness was identified, it acted quickly to inform investors and improve disclosure.
“There was never any intention to mislead, but Vanguard recognizes that it failed to meet the high standards to which it holds itself accountable and apologizes for any concern this matter may cause our customers .”
