Lanterne Fund Services Pty Ltd, a wholesale licensee, has been ordered to pay a A$1.25m ($815,295) penalty after failing to comply with six of the general obligations of Australian financial services (AFS) licence holders.
The company was operating a ‘licensee for hire’ business model, where it authorized over 60 corporate authorized representatives (CARs), and 205 authorized representatives (ARs). The CARs businesses operating under Lanterne’s AFSL included:
- venture capital funds;
- managed investment schemes;
- agricultural advisory services;
- wholesale funds management services;
- corporate advisory services;
- wholesale property funds;
- energy trading funds;
- digital asset funds; and
- climate change advisory services.
Besides charging a typical upfront fee of A$5,000 (3,261) per CAR, Lanterne also charged them up to A$3,000 (1,957) per month.
According to ASIC, Lanterne authorized dozens of representatives to operate under its licence – who collectively held up to A$1.685 billion ($1.1 billion) in funds under management.
Multiple failings
Between March 2019 and October 2021, Lanterne was found breaching its AFS licence when it failed to:
- have proper risk management systems;
- have proper technological and human resources to provide the services covered by its AFS licence;
- make sure that its representatives were sufficient trained;
- uphold the competence to provide services covered by its AFS licence,
- make sure that its representatives complied with Australian financial services laws; and
- ensure that the licensed services were provided efficiently, honestly and fairly.
The company also admitted to not having a proper IT infrastructure, IT resources plan, security management plan, IT back-up protocol or disaster recovery plan. And it confirmed it had only maintained its records by using a paper filing system until September 2020.
“Despite charging those representatives significant fees, Lanterne failed to maintain basic risk and compliance management systems. It maintained records using a paper filing system and, as the Court noted, had only one full-time employee, its CEO and sole director, Peter Cozens,” said ASIC Commissioner Alan Kirkland.
“These obligations were effectively ignored by Lanterne and in consequence the ultimate consumers of financial services were exposed to risks.”
Justice McEvoy
“These arrangements were woefully inadequate for a business of this scale and posed significant risk to investors. It is vital for the protection of consumers and investors that licensees take their compliance obligations seriously, and the penalties ordered in this matter highlight that importance.”
“Serious and systemic” contraventions
Justice McEvoy called the breaches “serious and systemic”.
He said: “Lanterne’s conduct fell well short of the reasonable standard of performance of an AFSL holder, which the public is entitled to expect. It failed to demonstrate competence in performing its obligations as an AFSL holder and competence in complying with its applicable statutory obligations.
“The real point which must be reflected in the penalty imposed is that these obligations were effectively ignored by Lanterne and in consequence the ultimate consumers of financial services were exposed to risks which could have been mitigated had there been compliance with the requirements of s 912A(1) of the Act. This requires a substantial penalty.”
Lanterne has also been ordered to get an independent expert to review and report on its systems, processes and controls, and to implement the recommendations that are set by the expert.