Luxembourg readies its response to political upheaval

Luxembourg, one of Europe’s growing financial hubs, is going through a change of strategy in how it will present itself to the outside world, admits minister of finance, Pierre Gramegna.

Speaking at the recent spring conference organised by Alfi, the country’s body representing investment funds, the minister talked about how the Grand Duchy, home to almost 600,000 people, should profit from future political developments in Europe.

“We no longer need to worry about the reputation of our financial centre, as that reputation is good, but there are challenges ahead,” said Mr Gramegna. The regulatory body, the CSSF, has recently increased its personnel to 675 people, anticipating a surge in business. Luxembourg is growing by 4 per cent in 2017, almost approaching pre-financial crisis figures.

Unlike many other international financial centres, the landlocked country has initiated a review of its banks in response to the 2015 leak of 11.5m documents detailing use of offshore companies for illegal purposes. “In Luxembourg, we didn’t talk a lot, but we acted,” said Mr Gramegna. “Very few other regulators have embarked on a similar process to that which the CSSF is carrying out right now.”

Luxembourg allows firms to file their documentation in French, German or English, he said, highlighting his country as a potential home for financial firms after Brexit. “We have had some success in terms of Brexit and there is more to come, which makes our competitors very envious,” alluding to the announcement from UK funds provider M&G about moving some staff to Luxembourg.

The Brexit situation was a relatively simple one, he said, and the British side and its financial industry should not expect too much from a post-divorce settlement with the EU. “We need to de-dramatise the situation. But you can’t have your cake and eat it, with all the advantages of the EU single market after you have walked out of the door.”

While London would continue to be a major financial centre and partner for Luxembourg, firms based there could no longer “have a passport to go back and forth” easily selling investment products in EU markets. “These players will need subsidiaries in the eurozone to have access to the EU market and Luxembourg is ideally placed to do that. You can’t do this with just a letterbox. Whatever happens with Brexit, Luxembourg and London will co-operate very smartly and very closely,” said Mr Gramegna.

But the lack of commitment of US president Donald Trump’s administration to open-trade principles and its move to protectionism, and how these changes influence the G20, could potentially damage Luxembourg’s prospects as a global financial centre.

“This is very worrying for Luxembourg and the whole of Europe,” said Mr Gramegna, frustrating his bid to build the “most intense commerce platform in the world.”

At Luxembourg’s regulatory body, the CSSF, Jean-Marc Goy, the counsel for international affairs, also sounded an optimistic note, although he warned about regulatory arbitrage competition between financial centres after Brexit.

“There should not be competition between supervisory authorities, there should not be a race to the bottom,” he said, stressing that new arrivals must have staff working in Luxembourg. “The monitoring and oversight of any functions delegated to London or elsewhere must be [carried out from] here.”

The country is aiming to create jobs in high value-added sectors, attracting risk managers, specialists in structuring alternative investments – after adoption of the recent EU directive – and fintech enthusiasts.

“Given the introduction of the AIFMD, especially with the specialisation of Luxembourg in real estate and private equity, there has been a huge interest in training courses in this area,” said Denise Voss, Alfi chairman. “Now we are hoping that people will be as interested to work on digital and fintech training as they were in alternative investments.”

Local commentators say Luxembourg could accommodate up to 20,000 post-Brexit jobs in new buildings currently being constructed, but there would be political problems locally if there were a huge renewed influx of foreigners into the financial industry and that 5,000 new foreign recruits would be more realistic. Luxembourg employers also fear a possible French election victory by Marine Le Pen would disrupt cross-border mobility and hamper access of the 60,000 French citizens who come in and out of Luxembourg each day.