Victorian AFSL sees licence cancelled and MD banned

ASIC has cancelled the Australian financial services licence (AFSL) of Victorian fund manager Guildfords Fund Management and banned its managing director for four years. 

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

Based in Brighton, Victoria, Guildfords provided advisory and dealing services in interests in managed investment schemes and securities, and custodial and depository services to wholesale clients. It also provided trustee services to unregistered managed investment schemes including the Magnolia Capital Opportunities Fund II.

ASIC found that Guildfords failed to meet numerous obligations of the Corporations Act, arising predominantly from its failure to adequately supervise director Mitchell Atkins and corporate authorised representative Magnolia Investment Pty (in liquidation). This enabled unauthorised high-risk trading of derivative products, specifically contracts for difference (CFD), that resulted in investor losses.

Atkins was disqualified by ASIC on 22 November 2023 from managing corporations for five years and banned for 10 years from providing financial services and engaging in credit.

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ASIC’s findings included that Guildfords:

• Did not comply with the financial services laws given it, as trustee of the Magnolia Head Fund, dealt in CFDs when it did not hold an AFS licence to do so and failed in its breach reporting obligations to report a reportable situation to ASIC;
• Did not take reasonable steps to ensure that its representatives complied with financial services laws, and was involved in its representatives’ unauthorised CFD trading given Guildfords, as the trustee of the Magnolia Head Fund, released monies for CFD trading without conducting checks or making any objective enquiry that the released funds would be used appropriately and in accordance with the Act;
• Did not take reasonable steps to ensure that its representatives complied with financial services laws given Guildfords failed to have oversight over documents which included misleading or deceptive representations (arising from Guildfords being unable to confirm whether it sighted such documents);
• Did not comply with the conditions of its AFS licence as it failed to maintain measures to ensure compliance with financial services laws and failed to maintain training registers of its representatives;
• Did not have adequate arrangements in place to manage the conflict of interest arising from Dr Payne being a director of Magnolia Asset Management while also a responsible manager of Guildfords;

To minimise the impact of the cancellation on current clients of Guildfords, the cancellation is subject to specifications, including that the licence continues until 30 December 2024 for the purpose of Guildfords providing services that are reasonably necessary for, or incidental to the day-to-day operation of the schemes (excluding issuing any new interests in the schemes).

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

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

Banning

In a subsequent announcement made on the same day (28 June), ASIC said it has banned managing director Dr Robert Payne from providing financial services, performing any function involved in the carrying on of a financial services business, and controlling an entity that carries on a financial services business for four years.

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

ASIC found that Payne: 

• Lacked the competence and diligence required of a responsible manager as he had no control or oversight over Atkins, MIM and MAM, with his failures extending to overseeing a licensee that engaged in unauthorised derivatives trading (among other breaches), causing investor losses;  
• Did not understand the extent of Guildfords’ failures to comply with its duties as a licensee, and he sought to minimise the significance of, and his responsibility for, them; and 
• Was involved in Guildfords’ contraventions of financial services laws. 

He has the right to apply to the Administrative Appeals Tribunal for a review of ASIC’s decision and the ban is recorded on ASIC’s banned and disqualified register.