In a statement on Wednesday, Vanguard Investments Australia said it accepted the Federal Court’s ruling on false claims relating to exclusion screens applied to securities in its Ethically Conscious Global Aggregate Bond Index Fund and ETF.

“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,” said the fund manager.

Earlier on Wednesday, the Federal Court issued a ruling fining Vanguard $12.9 million for breaching Australia’s financial services laws.

According to court documents, Vanguard will not only have to pay the huge fine, but will also have to post a "notice of misconduct by Vanguard" on its website for a period of 12 months.

The court first found Vanguard guilty of violating the Financial Services Act in March. It then explained that the fund manager did this by making false or misleading statements about the Vanguard Ethically Conscious Global Aggregate Bond Index Fund in 12 product disclosure statements, a media release, material on its website, an interview posted on YouTube and a presentation that was given at a fund manager event and then published online.

Although Vanguard admitted most of the Australian Securities and Investments Commission's (ASIC) allegations, the original ruling left the parties in dispute over a narrow range of liability issues.

"By Vanguard's own admission, it has misled investors on a number of its claims," ​​ASIC's Sarah Court said in March.

"In this case, Vanguard promised its investors and potential investors that the product would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels, when this was not always the case."

On Wednesday, Vanguard confirmed its cooperation with ASIC on the whole matter, which first started in 2021.

"There is no identified financial loss to investors," the fund manager said, stressing that the penalty payment would not be borne by Vanguard Australia investors.

The fund manager also assured that following a self-initiated independent review of relevant internal processes, it has "strengthened its procedures, governance, technology and training to reflect the high standards investors expect from Vanguard's products and services".

Although the court ruled in favor of ASIC, it also criticized some aspects of the claims 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 Bloomberg SRI Index included issuers that violated applicable ESG criteria. For the index, this includes 42 issuers that have collectively issued at least 180 bonds, and for the fund at least 14 issuers that have collectively issued at least 27 bonds.

ASIC argued that 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 acknowledged that it had identified and self-reported a breach to the regulator in early 2021. in connection with the product disclosure for 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 found that the descriptions of the exclusion screens published by the index provider and in Vanguard's product disclosure statement were not sufficiently detailed," the investment manager said back in 2023

“At the time, the description of the exclusion screens did not provide a sufficiently detailed explanation that some debt issuers that did not have scientific coverage were still included in the benchmark. As a result, the portfolio's exposure to certain securities may not be reasonably expected by investors."

Vanguard added that as soon as the disclosure weakness was identified, it acted quickly to inform investors and improve disclosure.

"There was never any intent to mislead, but Vanguard acknowledges that it did not live up to the high standards to which it is held accountable, and apologizes for the anxiety this matter may have caused our customers."