A wholesale “licensee for hire” responsible for over $1 billion in funds has been taken to court by the corporate regulator for failing to have adequate risk management and resources in place.
ASIC launched civil penalty proceedings on Wednesday morning against Lanterne Fund Services, alleging the firm failed to meet “organisational competence requirements” by not having financial, technological and human resources services in place to carry out its supervisory arrangements.
The licensee was responsible for $1.66 billion in funds under management, providing services to over 200 authorised representatives (ARs) and over 60 corporate authorised representatives (CARs).
Lanterne held an Australian financial services licence since 2004 which authorised financial product advice for specific products to wholesale clients.
Its clients included venture capital funds, managed investment schemes, wholesale funds management services, corporate advisory services, wholesale property funds, digital asset funds and climate change advisory services.
The organisation had only one employee,
, who was the responsible manager and sole director.
“Lanterne put the ultimate clients of its ARs and CARs at risk of harm in relation to the financial services provided to them by the ARs and CARs under Lanterne’s AFSL,” ASIC’s submission to court stated. “Lanterne benefited by receipt of fees from its CARs, without applying those fees to ensure the financial services provided under its licence were provided in accordance with the financial services laws.”
Nothing in return
ASIC stated Lanterne charged CARs an upfront fee of $5,000 and ongoing fees of $3,000 per month while conducting no due diligence.
ASIC deputy chair Sarah Court said the regulator is concerned that for an extended period there was a real risk of investor harm due to shortcomings in Lanterne’s systems and processes.
“Despite Lanterne’s authorised representatives operating under its licence being responsible for over $1 billion in funds and collectively paying monthly fees of around $180,000 to Lanterne during this period, it appears to ASIC that Lanterne operated a wholly deficient business, with no compliance staff and almost no risk management processes in place,” she said in a media release.
Aside from fines, ASIC is seeking an independent expert be appointed to review and report on Lanterne’s systems, processes and controls, and that it then implements a risk management and compliance program once the report is received.