Wholesale licensee Lanterne Fund Services has been ordered to pay a $1.25 million penalty by the Federal Court after it was found to have insufficient processes in place expected of a licensee.
The proceedings, which were brought by ASIC, found Lanterne breached its AFSL obligations by failing to “maintain the competence to provide financial services covered” by its licence.
Additionally, it failed to have adequate risk management systems, to ensure its representatives were adequately trained, and to have adequate technological and human resources to provide services.
It also failed take reasonable steps to ensure that its representatives complied with Australian financial services laws and “do all things necessary” to ensure that the financial services covered by the licence were provided efficiently, honestly and fairly.
The breaches were alleged to have occurred between March 2019 and October 2021, and ASIC launched court proceedings in July 2022.
Lantern had authorised more than 60 corporate authorised representatives (CARs) which covered 205 authorised representatives, charging upfront fees of $5000 per CAR with a further $3000 monthly ongoing fee. Representatives in the licensee collectively held $1.69 billion in funds under management.
Lanterne admitted in court it didn’t document risk management systems, was reliant on CARs self-reporting any exceptions to compliance obligations, conducted no diligence on the CARs, and did have enough appropriately qualified responsible managers.
The court also ordered that an independent expert be appointed to review and report on Lanterne’s processes with those recommendations to be implemented.
“Although Lanterne’s contraventions were serious, I accept that Lanterne has taken some steps to remediate the deficiencies in its processes and procedures and has agreed to a compliance regime to be ordered by the court,” Justice McEvoy said in his judgement.
“Importantly, Lanterne has cooperated with ASIC in these proceedings, has not been found to have contravened the act before, has agreed the relevant background facts and has admitted the relevant contraventions.”
Justice McEvoy said this had led to a lower penalty than proposed by ASIC even though the new processes have yet to be installed.
However, Justice McEvoy disputed Lanterne’s submission that the contraventions are at the “less serious” end of the spectrum.
“Lanterne was content to take the benefit of the fees, but it was not prepared to invest some of them in appropriate compliance systems,” Justice McEvoy said.
ASIC argued CEO and sole director Peter Cozens was reckless in his obligations as an AFSL holder, whereas Lanterne argued he was only careless.
“In my assessment it is unnecessary to determine whether it is appropriate to describe Lanterne’s failure to comply with its statutory obligations as reckless, and I have not proceeded on the basis that it was reckless,” Justice McEvoy said.
“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.”
