Banks Finma closes proceedings against Leonteq and confiscates profits

The Swiss Financial Market Supervisory Authority Finma has concluded proceedings against derivatives specialist Leonteq in connection with the distribution of products. It is calling it a serious violation and is confiscating millions in profits.

In connection with the distribution of its financial market products by a number of distributors abroad, Leonteq had "seriously" breached its risk management obligations and warranty obligations, Finma announced on Thursday. Accordingly, it has ordered "measures to restore compliance".

According to the decision, Leonteq may now only work with foreign distributors that are subject to regulation comparable to that in Switzerland. Finma will appoint an auditor to monitor the correct implementation of the measures. In addition, the authority has ordered Leonteq to confiscate profits amounting to CHF 9.3 million.

Insufficiently monitored

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

However, Leonteq emphasized in Thursday's press release that various of these allegations had proven to be unfounded. In particular, there are "no indications" that Leonteq was intentionally involved in any money laundering or tax evasion.

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

The business model of these distributors had not been subject to sufficient critical scrutiny, although various contradictions had emerged. As a result, some of these distributors later sold Leonteq's structured investment products in countries that were not contractually intended for them and for which they were not licensed. The distributors had thus violated not only contractual but also regulatory provisions, exposing Leonteq to considerable risks.

Profit forecast lowered

However, Finma admits in its press release that Leonteq has already taken extensive organizational and process measures in recent years, including expanding compliance and distribution controls and terminating suspicious distributors.

Leonteq itself writes that in future it will only do business with distributors that are regulated. Leonteq has terminated its distribution relationships with a small number of unregulated distributors, which currently account for less than 0.5 percent of annual commission and service income.

Leonteq also writes that it has cooperated fully with Finma and regrets the shortcomings identified. "The weaknesses in our risk management should not have happened despite the rapid growth", CEO Lukas Ruflin was quoted as saying. The additional measures ordered would be implemented "with high priority". According to the information provided, the profit confiscation ordered by FINMA relates to transactions with two former distributors in the period from January 2018 to June 2022.

The confiscation of profits also affects the 2024 business result. Leonteq now expects a pre-tax profit in the single-digit million range for the year as a whole. Previously, Leonteq wanted to exceed the net profit from the previous year (CHF 20.6 million).