Finma has found serious violations of risk management regulations and warranty obligations at Leonteq. The institute, which specializes in structured products, vows to improve and wants to have its distribution chains better under control in the future – and has to issue a profit warning for 2024.
The financial market supervisory authority Finma concluded the enforcement proceedings it opened against the Leonteq financial group in 2023 and found that Leonteq “seriously violated its own risk management and warranty obligations”. Accordingly, “measures to restore the proper situation will be ordered,” as can be seen from Thursday’s announcement.
Leonteq is now only allowed to work with foreign distributors who are subject to regulation that is comparable to Switzerland. An inspection officer appointed by Finma will check the correct implementation of the measures. In addition, the profit that was “made in serious violation of regulatory law with two unregulated distributors” will be confiscated in the amount of 9.3 million francs.
Distribution chain of structured products inadequately monitored
Furthermore, Finma requires that the institute strengthens corporate governance organizationally; among other things, the responsibilities within management must be comprehensively explained in writing and reporting on reputation-relevant governance issues must be introduced.
Finma also describes how the rule violations occurred. Leonteq sells structured investment products that are issued by itself or by its partners. The distribution of our own products is primarily carried out indirectly via external distributors. Finma’s investigation showed that the distribution chain was inadequately monitored. In addition, in some cases Leonteq worked with dubious, unregulated distributors.
“Cooperated well with Finma”
“The business model of these distributors was not critically examined sufficiently during onboarding, although various contradictions emerged.” Some of these distributors later sold structured investment products in countries that were not contractually intended for this and for which they were not licensed. “The distributors have thereby violated not only contractual but also regulatory provisions and thereby exposed Leonteq to considerable risks.”
The supervisory authority also appreciates that Leonteq “cooperated well with Finma” in the process. And the institute has already taken extensive procedural and organizational measures in recent years, expanded its compliance and distribution controls and terminated suspicious distributors.
No money laundering or tax evasion
In its own statement, Leonteq emphasizes that it has fully cooperated with Finma, regrets the deficiencies and points to the “comprehensive organizational measures” it has already taken in recent years. And the institute vows: “Leonteq will implement the additional measures ordered by Finma with high priority.”
Leonteq also notes that several of the allegations made in the media and by third parties (and which triggered Finma’s investigation) have proven to be unfounded. “In particular, there is no evidence that Leonteq was intentionally involved in any money laundering or tax evasion.”
Significant investments in compliance and risk management
As already communicated as part of the 2024 half-year results, Leonteq has implemented a comprehensive program in recent years to strengthen its global compliance and risk management. «The company has filled important management and expert positions and reduced the number of target markets. In addition, the internal control system was improved.
This also involved significant investments in personnel – the number of employees in the areas of risk control and compliance has more than doubled in recent years – as well as in processes, technology and data analysis.
Ashes on the heads of the CEO and Chairman of the Board of Directors
The top leadership duo sprinkles ashes on their heads. CEO Lukas Ruflin: “The weaknesses in our risk management should not have happened despite the rapid growth.”
Christopher ChambersChairman of the Board of Directors: «Leonteq has placed a strong focus on improving our compliance and risk management processes. We will continue to invest heavily in these areas. We know that effective governance will further strengthen Leonteq as a sustainably profitable company.”
Guidance for 2024 adjusted downwards
Leonteq also uses the opportunity to provide an update on business developments until the end of November. From July to November 2024, over 108,000 customer transactions were processed (+34 percent compared to the same period last year), and the total transaction volume increased by 27 percent to 9.8 billion francs. Overall, commission and service income in the first eleven months of 2024 amounted to 199 million francs (+1 percent).
The trading result in the first eleven months of 2024 was 23 million francs, which is significantly below the comparable figure of 36 million francs. Leonteq refers, among other things, to “negative hedging contributions due to an operational risk event in October”.
In view of these developments and the confiscation of profits by Finma, Leonteq is revising its guidance. A profit before taxes in the single-digit million range is now expected for the full year 2024. Until now, the ambition was that the profit should be higher than that of 2023 (20.6 million francs).
