The Swiss Financial Market Supervisory Authority (FINMA) has imposed significant penalties on Leonteq, a Zurich-based derivatives firm, for breaching risk management and warranty obligations.
Leonteq had engaged with unregulated distributors abroad, resulting in a confiscation of profits amounting to CHF 9.3 million. As a corrective measure, FINMA has mandated that Leonteq can only collaborate with foreign distributors subject to regulations comparable to those in Switzerland. Leonteq has acknowledged the ruling and will not contest it in court.
The company has terminated its relationships with the unregulated distributors involved, which now represent less than 0.5 percent of its annual commission and service income. Despite the challenges, Leonteq remains optimistic about its financial performance and projects a profit in the "single-digit million range" for the upcoming year.
The confiscated profits relate to transactions conducted with two former distributors between January 2018 and June 2022. Leonteq's CEO expressed regret over the identified weaknesses in the firm's risk management practices and emphasized the need for improvement. The firm is committed to strengthening its internal control systems.
The actions taken by FINMA against Leonteq highlight the increasing scrutiny that financial institutions face regarding compliance with regulatory standards. Financial institutions must carefully evaluate their relationships with third-party distributors to mitigate exposure to regulatory penalties and reputational damage. The Leonteq case underscores the importance of maintaining a strong compliance culture within organizations.
Firms in the financial industry will need to adapt their strategies to align with regulatory demands while pursuing growth opportunities. The outcome of Leonteq's enforcement proceedings may influence the behavior of other market participants and shape the regulatory landscape in Switzerland and beyond.