At the Heart of Europe

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.

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.

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.