'Licensee for hire' firm Lanterne fined $1.25m for compliance breaches
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The news: Wholesale licensee Lanterne Fund Services has been ordered to pay a $1.25 million penalty by the Federal Court after it failed to comply with six of the general obligations of Australian financial services (AFS) licence holders.
The numbers: Sydney-based Lanterne operates a "licensee for hire" business model by authorising representatives to provide advice and other financial services to wholesale customers. It authorised over 60 corporate authorised representatives (CARs) and under them, 205 authorised representatives (ARs), resulting in up to $1.7 billion in funds under management.
In addition to a typical upfront fee of $5,000 per CAR, Lanterne charged each CAR up to $3,000 per month in ongoing monthly fees.
The context: In proceedings brought by the Australian Securities and Investments Commission (ASIC), the court found Lanterne breached its AFS licence obligations between March 2019 and October 2021.
The breaches included failing to have adequate risk management systems or adequate technological and human resources to provide the services covered by its AFS licence.
According to the ruling, Lanterne also failed to ensure that its representatives were adequately trained, maintain the competence to provide financial services covered by its AFS licence, take reasonable steps to ensure that its representatives complied with Australian financial services law, and do all things necessary to ensure that the financial services covered by the licence were provided efficiently, honestly and fairly.
After a two-year review, ASIC raised concerns last December about misleading advertising of financial products by neobrokers, insufficient internal compliance in the industry, social trading behaviour and the widespread practise of renting key regulatory licences from third party operators.
What they said: ASIC commissioner Alan Kirkland said: "Lanterne authorised dozens of representatives to operate under its licence — who together had up to $1.685 billion in funds under management.
"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.
"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."
The source: ASIC media release
