The recent sanctions imposed on Leonteq by Finma serve as a reminder of the importance of risk management in the financial industry.
Leonteq, a financial group specializing in structured products, has been fined by Finma for serious breaches of risk management regulations and warranty obligations. The investigation revealed that Leonteq had violated its own risk management and governance obligations, leading to strict measures being imposed on the company to restore compliance with regulatory requirements.
The scrutiny on Leonteq's operations primarily stems from inadequate oversight of its distribution chain. The investigation found that Leonteq had collaborated with unregulated distributors, exposing itself to significant risks. These distributors had sold products in countries without the necessary authorizations, violating contractual and regulatory provisions. As a result, Leonteq is now restricted to working only with foreign distributors that adhere to regulations comparable to those in Switzerland.
In response to the findings, Finma has mandated that Leonteq strengthen its corporate governance structure, including comprehensive documentation of management responsibilities and the introduction of a reporting system for governance issues. Leonteq has expressed its commitment to improving its governance and compliance measures and has already implemented extensive changes in recent years. An auditor appointed by Finma will oversee the implementation of the required measures.
The financial implications of Finma's findings are significant, with Leonteq being ordered to forfeit profits earned in violation of regulatory requirements. The company has also revised its profit guidance downward for 2024. Despite these challenges, Leonteq has reported an increase in client transactions and total transaction volume. However, trading income has declined partly due to negative hedging contributions from an operational risk event.
Leonteq's leadership has acknowledged the failures in risk management and expressed a commitment to improving compliance and risk management processes. The company has already made substantial investments in these areas. Throughout the enforcement proceedings, Leonteq has maintained a cooperative stance with Finma and has refuted allegations of involvement in money laundering or tax evasion. The focus for Leonteq now is on restoring compliance and enhancing its risk management framework, with ongoing oversight by Finma to ensure regulatory standards are met.