finma fines leonteq for serious risk management breaches and profit warning issued

Leonteq, a financial institution specializing in structured products, has been fined by the Swiss Financial Market Supervisory Authority (FINMA) due to breaches of risk management regulations and warranty obligations.

Enforcement Proceedings and Compliance Violations

The enforcement proceedings began in 2023 and revealed that Leonteq had failed to follow its own risk management protocols and had engaged with unregulated distributors, resulting in significant compliance violations.

As a result, Leonteq must implement measures to restore compliance and can only work with foreign distributors that meet regulatory standards similar to those in Switzerland.

Inadequate Monitoring and Profit Confiscation

FINMA's investigation found that Leonteq's monitoring of its distribution chain was inadequate, leading to the confiscation of a profit of CHF 9.3 million made through dealings with two unregulated distributors.

Strengthening Corporate Governance

In addition to financial penalties, FINMA has mandated that Leonteq strengthen its corporate governance framework, including defining management responsibilities and establishing a reporting system for reputation-related governance issues.

Leonteq has acknowledged the identified shortcomings and is committed to enhancing compliance and risk management.

Revised Financial Guidance and Operational Risk Events

Leonteq has already taken steps to improve internal controls and terminate relationships with suspicious distributors.

Leonteq has revised its financial guidance for 2024, expecting a pre-tax profit in the single-digit million range due to the profit confiscation and the impact of operational risk events.

Client Transactions and Leadership Commitment

Despite these challenges, Leonteq has reported an increase in client transactions and total transaction volume.

However, net trading income has decreased due to negative hedging contributions from an operational risk event.

Leonteq's leadership, including CEO Lukas Ruflin and Chairman Christopher Chambers, has acknowledged the risk management failures and is dedicated to improving compliance processes.

They have stated that the company will continue to invest in these areas for sustainable profitability and effective governance.

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