Go to

Luxembourg is a founding member of the EU and passionate promoter of European integration. Its financial services industry has always had a strong focus on crossborder business, making it the epitome of a European financial centre. Luxembourg connects financial institutions and investors, whether retail or institutional, with European and international markets.

FINANCING A STRONGER EUROPEAN ECONOMY

The fundamental purpose of the financial sector is to finance economic growth and create jobs. This has been clearly underlined by the current crisis and the financial industry will play a major role in helping our economies recover from the economic consequences of the lockdowns.

Bank lending to companies provides them with working capital and financeskey investment projects, such as new machinery, plants or research facilities. Banks further ensure safe and seamless transactions between companies and their customers as well as providers. Investment funds also help finance economic activity via the capital markets by investing in equities or in the bonds of nonfinancial companies. Insurance companies support economic activity by allowing companies to hedge their risks and investing the premiums they collect.

All these diverse activities, and the expertise which clusters in financial centres like Luxembourg as a result, benefit the European economy as a whole. In the case of Luxembourg, the assets under management of the local fund industry (EUR4.4 trillion as of April 2020) are invested in equities and bonds of firms across Europe and the world, supporting their expansion and job creation.

A significant share of these assets is also invested in government debt, helping finance all types of public infrastructure, such as roads, bridges, hospitals, schools and welfare systems.

The wealth management sector helps as well to finance economic activity by helping clients invest their money in the shares and bonds of European and global companies. As a leading hub for alternative investment funds, Luxembourg plays an important role in the area of real assets, such as infrastructure, or, in the area of private equity, in providing much-needed growth capital to non-listed firms.

The single market is certainly one of the biggest achievements of the EU. The free movement of people, goods, services and capital has been beneficial for all. The immense size and scale of the market allowed firms to grow by reaching a far greater number of customers. Much of the EU’s geopolitical clout rests on the economic power the single market provides. It is essential to continue to prioritise the deepening of this market.

In order to revitalise growth and boost job creation in the wake of the pandemic, it will be essential to tap the financial expertise which Europe’s diverse financial centres can provide.

Strong financial centres in Europe and a strong European financial industry will also allow Europe to take on those other challenges which we faced before the current crisis and which we will continue to face, such as increased competition from the US and Asia or the ageing of our populations.

Check out the financial institutions which chose Luxembourg

BUILDING ON THE EU’S CROSS-BORDER REGULATORY FRAMEWORK

The EU’s single market in financial services is certainly one of the most integrated cross-border markets in the world. Single market legislation facilitates the cross- border provision of financial services by allowing for EU-level regulation or mutual recognition of rules and standards. This unprecedented economic and regulatory integration is pushing further ahead in the wake of the global financial crisis with progress towards a Banking Union. The current crisis, unlike the global financial crisis, will not need radical regulatory initiatives to correct the functioning of some financial activities, but it could very well mean additional barriers in the regulatory sphere in order to leverage even further the potential of the EU’s single market.

At the same time, the single market, and specifically the possibility to passport services across the European Union, is underpinned by expert local supervision based on harmonised rules and close cooperation between national regulatory authorities. In the case of Luxembourg, the CSSF, which among other tasks, is supervising more than 3,800 investment funds, has long-standing expertise in regulating cross-border financial products and services and provides efficient and responsive supervision of the local industry.

Moving forward, the EU will look to achieve the goals of the Capital Markets Union (CMU), launched by the Juncker Commission and which the Von der Leyen Commission is committed to realising. In particular, the Commission should aim to achieve greater uptake of cross-border financial services within the EU, by tackling existing non-tariff barriers. One of the stated objectives of the CMU is to increase the sources of market funding for European companies, in particular SMEs. Luxembourg is looking forward to playing a leading role in this work, given its capital market strengths and its expertise in cross-border capital raising.

Completing the CMU has now become even more urgent for the EU in order to speed up the economic recovery from the pandemic. A fully-fledged CMU would help rebuild the EU economy, by providing new funding sources for businesses and investment opportunities for Europeans. It would also mobilise much-needed long-term investments in new technologies and infrastructure, tackle climate change and help deliver the EU’s New Green Deal and Digital Agenda. On June 10, 2020, the EU’s High-Level Forum (HLF) on CMU published its final report, setting out a series of recommendations to move the project forward.

The HLF proposed 17 inter-connected ‘game changers’ – measures the EU needs to urgently implement in order to remove the biggest barriers in its capital markets. These recommendations included: a single EU capital market access point; long-term investment funds; encouraging insurers to provide more capital market financing; scaling up the EU securitisation market, as well as recommendations on crypto and digital assets, and tokenisation. The Commission will present its next CMU action plan in the autumn of 2020.

In this context, it needs to be emphasised that a well-functioning single market and Capital Markets Union do not necessarily have to translate into greater centralisation of regulatory powers. Europe will need to leverage the respective expertise and talent pools of its various financial centres, local supervisors’ expertise and market knowledge, and efficient cooperation between regulatory authorities will remain key to unlocking the potential of the CMU.

With the emergence of new financial technology players, it has also become abundantly clear that the single market is leveraged to its full potential only in those areas where the EU has managed to create a harmonised framework, allowing firms to sell their services without friction to the EU’s 450 million consumers. Indeed, it is hardly surprising that of Europe’s five Fintech Unicorns, three are payment firms, while the other two are mobile-only banks (both of which started out by providing payment accounts).

The EU’s ongoing work to create a harmonised framework for digital financial services is an opportunity to scale up this sector in Europe beyond national markets. As it has done with the UCITS market, the EU could thus create financial products with a global success.

Mirroring the Capital Markets Union project is the ongoing construction of the EU Digital Single Market. The lockdown period has clearly shown the need for enhanced technology and will have given many aspects of digitalisation a major boost, such as tools allowing for video-conferencing or contactless payments. Clearly contactless payments have been given an exponential boost due to the pandemic as ATM transactions have fallen.

Technology services are by their very nature borderless, and the existence of EU-wide frameworks for e-commerce and the provision of digital services tap into the core competencies of the Luxembourg financial centre, and its multi-jurisdictional service offering. Luxembourg is the ideal home for such cross-border services in the EU.

Faced with an ageing European population and a growing pension gap, investments in and the availability of pension products are becoming increasingly important. Thanks to its leading role in the European fund industry, Luxembourg is very well positioned to become a major hub for products set up under the Pan-European Pension Plan initiative, a key opportunity to further strengthen and diversify our asset-management ecosystem.

STRENGTHENING OUR ROLE AS AN EU HUB

Faced with an ageing European population and a growing pension gap, investments in and the availability of pension products are becoming increasingly important. Thanks to its leading role in the European fund industry, Luxembourg is very well positioned to become a major hub for products set up under the Pan-European Pension Plan initiative, a key opportunity to further strengthen and diversify our asset-management ecosystem.

Beyond benefits for both European consumers and firms, a key advantage of the single market lies in the fact that it makes life easier for companies coming from outside the EU to establish themselves in the single market and serve clients across the 27 member states without the need for separate operations in each individual country.

Based on a coherent and well-defined regulatory framework, financial institutions can choose where to set up their European hub in order to service the whole of the EU market. The choice of jurisdiction will normally be driven by numerous considerations, including the relative strengths of the local ecosystem in the relevant industry segment, structural criteria such as financial stability and the predictability of the legal and tax environment, or the availability of talent. Quality of infrastructure will be another important criterion for incoming businesses following the Covid-19 crisis, particularly the need for resilient digital infrastructure.

Luxembourg will certainly score extremely high on all these criteria. The fact that even before the crisis, several countries and international organisations had already set up digital embassies to securely store their data or that Sovereign Wealth Funds had set up business continuity centres in Luxembourg, prove the point.

Luxembourg will continue to be able to leverage its international business environment and its highly skilled and multi-lingual workforce to serve international financial institutions active in multiple markets within the EU.

A recent live test for Luxembourg’s attractiveness as an EU hub for financial services was the fact that, in the context of Brexit, more than 60 financial firms decided to either strengthen their existing activities or establish a new EU hub in Luxembourg to ensure continued access to the EU single market.

In the context of Brexit, more than 60 financial firms decided to either strengthen their existing activities or establish a new EU hub in Luxembourg to ensure continued access to the EU single market.

The world’s Sovereign Wealth Funds also rely on the cross-border expertise of Luxembourg’s unique ecosystem as well as its highly developed toolbox to structure investments. The same goes for major international and regional development banks. As these institutions are tax-exempt because of their sovereign or supra-national status, they do not come to the Duchy for any fiscal advantage, but for the inherent qualities of Luxembourg’s financial centre.

In the next five years, Luxembourg will redouble its efforts to increase the number and geographical diversity of firms established in the country, including financial institutions from certain priority emerging markets looking to use Luxembourg as a platform to connect with European and global investors.

AMBITION STATEMENT :

Luxembourg’s ambition is to further expand its role as a cross-border centre
of excellence and EU hub, so that by 2025 it will have accomplished
the following goals:

  • contributing
    to job creation and sustainable growth, at home and across the EU
  • playing a key role
    in developing a sound and competitive EU regulatory framework promoting financial stability, resilience and innovation with new products and services to meet the objectives of the Capital Markets Union
  • expanding
    the international and geographical spread of the financial institutions which setup here
  • leveraging
    new and forthcoming pan-European regulations for digital or emerging financial products and services
  • recognised
    as a key domicile for pan-European pension plan products

Continue Reading the other chapters :

  • AT THE HEART OF EUROPE

    Further expand Luxembourg's role as a cross-border centre of excellence and EU hub.

    Read More
  • COMPLEMENTARITY TO OTHER EU CENTRES

    Deepening Luxembourg's role as a prime destination for international finance.

    Read More
  • LEADING ON SUSTAINABILITY

    Leading the drive to increase the total level of funds in sustainable investments from the billions to the trillons of euros.

    Read More
  • PUSHING INNOVATION

    Build on Luxembourg's proven track record of product and technological innovation.

    Read More
  • RESPONSIBLE GOVERNANCE

    Continue to build Luxembourg's Financial industry on sustainable principles in taxation and regulation.

    Read More
  • NURTURING THE HUMAN DIMENSION

    Support the continued expansion of the Luxembourg financial industry.

    Read More