REGULATORY ENVIRONMENT
The global financial crisis has led to increased regulatory compliance and risk management requirements. Luxembourg has embraced this development and maintains the highest international regulatory standards.
Luxembourg is a founding member of the EU and implements all EU rules on financial services. In addition, the Grand Duchy is an active member of all international standard-setting bodies, including FATF, the OECD, IOSCO and the Basel Committee and adheres to all global regulations and standards. This is the framework within which the country has developed a palette of onshore, tax-compliant services, tailor-made for an international clientele.
Luxembourg fosters a strong culture of investor protection. Financial institutions are closely and strictly supervised by Luxembourg’s two supervisory bodies, the Financial Sector Supervisory Commission (CSSF) and the Insurance Commission (CAA), so assuring financial stability.
The evolution of the wealth management sector has created a complex environment littered with acronyms and shaped by both national reforms at European level and international guidelines. It is essential that financial institutions receive expert advice and legal certainty as they seek to develop commercially viable solutions in a changing landscape.
A value proposition based on transparency
The EU’s second Markets in Financial Instruments Directive, MiFID II, which was implemented in 2018, aims at further increasing investor protection. The legislation transformed the way wealth and asset management products are distributed and how private banks service their clients. The new rules have made a significant contribution to transparency in the wealth management sector.
MiFID II focused on fees and price disclosure, extending transparency requirements into this key area. Prior to MiFID II, wealth management advice often appeared free of charge as fees were just added to product costs. This model has now disappeared and the industry is required to explain the change in the remuneration structure and demonstrate that it provides all the value of a personalised and expert service.
Worldwide, many wealth managers and private banks have optimised their operating models, aligning their operations and costs with the new market and regulatory realities. The benefits brought about by MiFID II clearly outweigh any specific administrative challenges. Luxembourg is particularly well positioned to adapt to these changes and to offer clients a substantial value proposition.
DIGITALISATION AND AMAZONISATION
OF WEALTH MANAGEMENT
Digitalisation is transforming the very nature of wealth management activities. This trend is particularly clear in platformization of service provision. While processes are being automated, professionals in the private banking sector will always care about understanding clients’ long-term objectives, passions, fears, and dreams. Personal relationships and trust are at the heart of wealth management and the targeted use of information and communication technology is an increasingly important and helpful tool. Digital innovation will take current capabilities to new levels. Luxembourg wealth managers, researchers and the government are working together on specific applications. Technology is constantly evolving, with developers testing the potential of big data, artificial intelligence, and blockchain to boost communication, service quality and efficiency.
Investing in Digital
In Luxembourg and across Europe, private banks are expected to continue to invest significantly in digitalisation over the coming years. The biggest efforts will be concentrated in digitising end-to end processes (e.g. client onboarding or mortgage applications), building online advice capabilities (e.g. portfolio health checks with recommended actions or simulation tools) and improving front office interaction, such as remote advice.
Ecosystem approach to FinTech
To better win and serve these new clients, the wealth management industry is embracing FinTechs and the complementary support they offer. Fintechs offer a means to streamline infrastructure and boost efficiency. They can also transform the service and product offering. This collaboration between wealth management and Fintech involves the use of different building blocks – robo-advisors, a holistic advisory approach, digital research, and wealth platforms. The importance of these new players and technologies, together with its robust and reliable regulatory environment make Luxembourg a welcoming and forward-leaning EU wealth management hub.
Ultimately participating banks will be able to accept more clients and transactions than they currently can, because our solution improves the efficiency and accuracy of KYC compliance, keeping costs down and enabling new, more attractive banking products.