Finma has found serious breaches of risk management regulations and warranty obligations at Leonteq. The institution, which specialises in structured products, vows to improve and wants to have its distribution chains under better control in future - and has to issue a profit warning for 2024.
The Swiss Financial Market Supervisory Authority (Finma) has concluded its enforcement proceedings against Leonteq, a financial group specializing in structured products, initiated in 2023. Finma found that Leonteq had «seriously violated its own risk management and governance obligations.» Measures have been imposed to «restore compliance with regulatory requirements,» according to the statement released on Thursday.
As part of the sanctions, Leonteq is now only permitted to work with foreign distributors subject to regulations comparable to those in Switzerland. An auditor appointed by Finma will oversee the proper implementation of these measures. Additionally, profits of CHF 9,3 million, earned «in severe violation of regulatory requirements with two unregulated distributors,» will be confiscated.
Inadequate Oversight of Structured Product Distribution Chain
Finma has also ordered the institution to strengthen its corporate governance structure. Among other requirements, management responsibilities must be comprehensively documented in writing, and a reporting system on governance issues relevant to reputation must be introduced.
The supervisory authority detailed how the violations occurred. Leonteq sells structured investment products that it or its partners issue. These products are primarily distributed indirectly through external distributors. Finma's investigation revealed that Leonteq had inadequately monitored its distribution chain and, in some instances, collaborated with questionable, unregulated distributors.
«Good Cooperation with Finma»
«The business models of these distributors were not sufficiently scrutinized during onboarding, despite various contradictions,» Finma noted. Some of these distributors subsequently sold structured investment products in countries not contractually designated for such sales and without necessary authorizations. «The distributors thus violated not only contractual but also regulatory provisions, exposing Leonteq to significant risks.»
However, the authority also acknowledged that Leonteq "cooperated well with FINMA" during the proceedings. In recent years, the institution has already implemented extensive procedural and organizational measures, enhanced its compliance and distribution controls, and terminated relationships with suspicious distributors.
No Evidence of Money Laundering or Tax Evasion
In its own statement, Leonteq emphasized its full cooperation with Finma, expressed regret over the deficiencies, and highlighted the «comprehensive organizational measures» it had already taken in recent years. The institution pledged to «implement the additional measures required by Finma as a top priority.»
Leonteq also pointed out that several allegations made in the media and by third parties, which had prompted Finma’s investigation, were found to be unfounded. «In particular, there is no evidence to suggest that Leonteq was knowingly involved in potential money laundering or tax evasion.»
Significant Investments in Compliance and Risk Management
As communicated during the 2024 half-year results, Leonteq has implemented a comprehensive program to strengthen its global compliance and risk management in recent years. «The company has filled key leadership and expert positions and reduced the number of target markets.» Additionally, its internal control system has been improved.
These efforts involved substantial investments in personnel—doubling the number of employees in risk control and compliance in recent years—as well as in processes, technology, and data analytics.
Leadership Acknowledges Failures
Leonteq's top executives have acknowledged the failures. CEO Lukas Ruflin stated: «The weaknesses in our risk management should not have occurred, even amid rapid growth.»
Christopher Chambers, Chairman of the Board of Directors, added: «Leonteq has placed a strong focus on improving our compliance and risk management processes. We will continue to invest significantly in these areas. We understand that effective governance will further strengthen Leonteq as a sustainably profitable company.»
2024 Guidance Revised Downward
Leonteq also provided an update on business performance through the end of November. Between July and November 2024, the company processed over 108,000 client transactions, a 34 percent increase from the same period last year, with total transaction volume rising 27 percent to CHF 9,8 billion. Commission and service income for the first eleven months of 2024 totaled CHF 199 million, a 1 percent increase.
However, trading income for the first eleven months of 2024 was CHF 23 million, significantly below the CHF 36 million recorded during the same period last year. Leonteq attributed this decline partly to «negative hedging contributions caused by an operational risk event in October.»
In light of these developments and Finma's profit confiscation, Leonteq revised its 2024 guidance. The company now expects pre-tax profit to be in the single-digit million range for the full year. Previously, it had aimed for profit to exceed the 2023 level of CHF 20,6 million.