Victorian AFSL has its license canceled and MD banned

ASIC has canceled the Australian financial services license (AFSL) of Victorian fund manager Guildfords Fund Management and banned its chief executive for four years.

The regulator said it found “significant and systemic oversight and compliance failures” in the firm’s provision of financial services.

Headquartered in Brighton, Victoria, Guildfords provided advisory and trading interests in investment programs and managed securities, as well as custody and depository services to wholesale clients. She also provided trustee services to unregistered managed investment programs, including Magnolia Capital Opportunities Fund II.

ASIC found that Guildfords had failed to comply with numerous regulatory obligations Companies Actarising primarily from his failure to adequately supervise Director Mitchell Atkins and the authorized representative of Magnolia Investment Pty (in liquidation). This enabled unauthorized, high-risk transactions of derivatives, particularly contracts for difference (CFDs), which resulted in losses for investors.

On 22 November 2023, Atkins was disqualified by ASIC from managing companies for five years and banned for ten years from providing financial services and engaging in lending.

ASIC’s findings include that Guildfords:

• Failed to comply with financial services laws imposed on him as a director of the Magnolia Head Fund, traded CFDs when he did not hold an AFS licence to do so and failed to comply with his breach reporting obligations to report a reportable matter to ASIC;
• Failed to take reasonable steps to ensure that its representatives complied with financial services laws and was involved in its representatives’ unauthorized CFD transactions given that Guildfords, as trustee of the Magnolia Head Fund, released funds for CFD transactions without carrying out verifications or objective investigation to ensure that the funds released would be used appropriately and in accordance with the law;
• Failed to take reasonable steps to ensure that its representatives complied with financial services laws, as Guildfords failed to monitor documents which included misleading or deceptive statements (resulting from Guildfords being unable to confirm whether it had seen these documents);
• Failed to comply with the conditions of its AFS license because it failed to take steps to ensure compliance with financial services laws and failed to maintain records of training of its representatives;
• Had not put in place adequate arrangements to manage the conflict of interest arising from Dr Payne being a director of Magnolia Asset Management while also being a responsible manager of Guildfords;

In order to minimize the impact of the cancellation on current customers of Guildfords, the cancellation is subject to specifications including that the license continues until 30 December 2024 with the aim of enabling Guildfords to provide services reasonably necessary or incidental to the day-to-day operation of the schemes (excluding the issuance of new interests in the schemes).

Guildfords has the right to apply to the Administrative Appeal Tribunal for a review of ASIC’s decisions.

ASIC’s investigation into the affairs of Magnolia Capital Group continues.

Prohibition

In a subsequent announcement on the same day (28 June), ASIC said it had banned its chief executive, Dr Robert Payne, from providing financial services, carrying out any function involved in carrying out a financial services business and controlling an entity that carries out a financial services business for four years.

Payne was a responsible manager and key person at Guildfords, responsible for monitoring and supervising its authorised representatives and those of the company, including Atkins.

ASIC discovered that Payne:

• Lacked the skill and diligence required of a responsible manager as he had no control or oversight over Atkins, MIM and MAM, his failures extending to the supervision of a licensee who engaged in unauthorized derivatives transactions (among other violations), resulting in losses to investors;
• He failed to appreciate the extent of Guildfords’ breaches of its obligations as a licensee and sought to minimise the significance of those breaches and his liability for them; and
• Was involved in Guildfords’ breaches of financial services laws.

He has the right to apply to the Administrative Appeal Tribunal for a review of ASIC’s decision and the ban is entered on ASIC’s Register of Banned and Disqualified Persons.