Traditional but fashionable again
The results of the Luxembourg banks look more subdued compared to pre-crisis figures, but the situation is not all that negative. This is the analysis of Jean Guill during the 12th edition of the PwC Banking Day in Luxembourg. The Director General of the financial centre’s supervisory body (CSSF) painted quite an optimistic outlook.
“Balance sheets have shrunk, capital requirements have increased, and liquidity problems have come to the forefront. All this, coupled with very low interest margins, means that banks’ profits are lower than they were a few years ago. Nevertheless, we also see that these figures are not going down but remaining stable”. Jean Guill, Director General of the National Supervisory Authority CSSF looked in the rear view mirror for a couple of minutes but then stepped on the gas pedal.
He underlined that he sees that some of Luxembourg’s traditional advantages have resurfaced. “The expression gateway to Europe is very much in fashion again and we can see that more banking groups are using Luxembourg to open branches in different countries; not only to provide services or to look for clients but to really branch out. It is not only the large Chinese banks opening branches in Luxembourg but quite a long list of candidates wishing to open banks in Luxembourg”.
There are a dozen candidates lining up waiting for permission to open a bank in Luxembourg; quite an impressive number in times like these. They are diverse in size, geographic origin and business strategy. In other words, “a dozen candidates that come for a dozen different reasons”, as Mr Guill puts it.
Added to this quite encouraging outlook for the banking sector in Luxembourg, there is also an increasing demand for wealth management and family office services from more wealthy customers than Luxembourg has ever had. In that context, it is helpful that the new law on family offices will probably be passed in local Parliament next week, Jean Guill stressed.
The banking union in Europe was another topic raised during his speech. Although it is meant to bring more stability to the financial system and the European Union as a whole, there are still questions about this union.
“One possibility would be to limit European supervision to Greek, Italian, Spanish and other banks that received public support; but I think that will not be the solution taken. In the end, at the very least the major banks will come under the supervision of the European Central Bank (ECB) and this would mean that a large share of banks present in Luxembourg would too. But it is too early to say who will be on which side of the line that will be drawn”.
Although the banking union is a good idea, it might not necessarily be positive for the development of an international financial centre such as Luxembourg, because it takes away authority the national supervisor had before, Jean Guill deplores. In light of this, international banking groups will have to review and redefine both their legal structure and their geographic footprint. They will have to decide whether and where to set up subsidiaries or branches.
While Jean Guill has underlined that the creation of a European supervisory body will not have an effect on the structure of the 27 national supervisory authorities in the EU, he summed up the CSSF’s achievements over the last years by saying, “We feel that the CSSF has managed to combine financial stability and the protection of depositors and investors with the development of the financial sector. We have always tried to be as close as possible to the sector and to adapt to its needs. On the other hand, we have also tried not to be too lenient. We don’t want to be seen – like some of our competitors try to depict us – as the regulator with the light touch”.
A CSSF circular on internal governance will be under the banks’ Christmas trees before the end of the year. Mr Guill reminded the management of the various banks that under the new recommendations of the Financial Action Task Force (FATF), tax crimes would be a primary offence to money laundering.
“That means that, once this has been transposed into Luxembourg law, if you have a suspicion that a customer may be committing a tax crime, you have to report it to the public prosecutor, just like with the current law on suspicions that a client is dealing with drugs or financing terrorism”. One thing is clear and Jean Guill underlined it: this represents a major change to the regulatory framework on integrity and transparency in the financial sector. CW