Leonteq: Finma collects millions in profits

The financial market supervisory authority Finma is closing proceedings against the derivatives specialist Leonteq in connection with the distribution of products. She speaks of a serious violation and is collecting millions in profits.

Finma announced on Thursday that Leonteq had “seriously” violated its risk management obligations and warranty obligations in connection with the distribution of its financial market products through some distributors abroad. Accordingly, she ordered “measures to restore the proper condition”.

According to the decision, Leonteq is only allowed to work with foreign distributors who are subject to regulations comparable to those in Switzerland. It is said that Finma will appoint an inspection officer to check that the measures are being implemented correctly. The authorities also ordered Leonteq to confiscate profits amounting to 9.3 million francs.

Inadequately monitored

The case got rolling in 2022. Based on external information, press reports and reports from Leonteq itself, Finma opened enforcement proceedings in 2023. The “Financial Times,” for example, wrote in October 2022, citing whistleblowers, that the Zurich derivatives boutique may have allowed money laundering and tax evasion.

However, Leonteq emphasized in Thursday’s announcement that several of these allegations had proven to be unfounded. In particular, there is “no evidence” that Leonteq was intentionally involved in any money laundering or tax evasion.

According to Finma, the investigation showed that Leonteq had inadequately monitored its distribution chain. In addition, the financial group worked “in some cases with dubious, unregulated distributors”.

The business model of these distributors was not critically examined sufficiently, although various contradictions emerged. As a result, some of these distributors later sold Leonteq’s structured investment products in countries that were not contractually intended for this and for which they were not licensed. The distributors would have violated not only contractual but also regulatory provisions and thereby exposed Leonteq to considerable risks.

Profit forecast lowered

However, Finma admits in its statement that Leonteq has already taken extensive organizational and process measures in recent years and, among other things, has expanded compliance and distribution controls and terminated suspicious distributors.

Leonteq itself writes that in the future it will only do business with distributors who are regulated. Leonteq has ended sales relationships with a few unregulated distributors, which today account for less than 0.5 percent of annual commission and service income.

Leonteq further writes that they have fully cooperated with Finma and regret the deficiencies identified. “The weak points in our risk management should not have happened despite the rapid growth,” said CEO Lukas Ruflin. The additional measures ordered would be implemented “with high priority”. According to the information, the confiscation of profits ordered by Finma relates to transactions with two former distributors in the period from January 2018 to June 2022.

The confiscation of profits will also impact the 2024 business results. Leonteq now expects a profit before taxes in the single-digit million range for the full year. Until now, Leonteq wanted to exceed the net profit from the previous year (CHF 20.6 million).

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