RegStream

In connection with the distribution of its financial market products by some distributors abroad, the Leonteq financial group (LTQ) has seriously breached its risk management obligations and the obligations to ensure suitability. This was established in the context of enforcement proceedings by the Swiss Financial Market Supervisory Authority FINMA, which has imposed measures to ensure that compliance with the law is restored. According to FINMA’s decision, the financial group may, among other things, only work with foreign distributors that are subject to regulation comparable to that in Switzerland. FINMA will appoint an audit mandatary to monitor the correct implementation of the measures. FINMA has also ordered the disgorgement of profits totalling CHF 9. 3 million.

Based on external information, press reports and reports from Leonteq AG itself, FINMA opened enforcement proceedings against the Leonteq Financial Group (LTQ) in 2023, which it has now concluded. FINMA found that the financial institution had seriously breached its risk management obligations and the obligations to ensure suitability. LTQ cooperated well with FINMA during the proceedings.

Serious breach of risk management obligations 

The financial group sells structured investment products issued by itself or by its partners. The company’s own products are primarily sold indirectly via external distributors. FINMA’s investigation showed that LTQ had inadequately monitored its distribution chain. The financial group also worked with dubious, unregulated distributors in some cases. The business model of these distributors was not scrutinised sufficiently during onboarding, although various contradictions arose. Subsequently, some of these distributors later sold structured investment products in countries for which they were not contractually authorised and for which they did not have a licence. In doing so, the distributors violated not only contractual but also regulatory provisions, thereby exposing LTQ to considerable risks.

Institution implements its own measures

LTQ has already taken extensive procedural and organisational measures itself in recent years, including expanding its compliance and distribution controls and dismissing suspicious distributors.

FINMA orders additional measures

FINMA has decreed a raft of additional measures. For example, the institution must strengthen its corporate governance in terms of organisation. FINMA requires that LTQ comprehensively sets out and allocates responsibilities within its management in writing and introduces reporting on governance issues that are relevant to reputation. LTQ is prohibited from doing business with unregulated distributors. The institution must terminate existing business relationships with unregulated distributors. The financial group may only work with foreign distributors that are subject to regulation comparable to that in Switzerland.

Following notification from LTQ that it has implemented all measures, FINMA will appoint an audit mandatary as part of its ongoing supervision who will monitor the correct implementation of these measures and report to FINMA. The financial group may not accept any new distributors that are categorised as high risk until compliance with the law has been fully restored. FINMA has also ordered the disgorgement of profits totalling CHF 9. 3 million. The profit was generated in serious violation of regulatory law with two unregulated distributors. The decision is not yet legally binding.