“Our world is entering a new economic era defined by sticky inflation, high interest rates, and uncertain growth,” said Cécile Liégeois, clients and markets leader at PWC Luxembourg, reflecting on the latest edition of the consultancy’s sourcing strategies survey, published on Monday. Photo: PWC Luxembourg

“Our world is entering a new economic era defined by sticky inflation, high interest rates, and uncertain growth,” said Cécile Liégeois, clients and markets leader at PWC Luxembourg, reflecting on the latest edition of the consultancy’s sourcing strategies survey, published on Monday. Photo: PWC Luxembourg

With 90% of Luxembourg’s financial centre now outsourcing, PWC Luxembourg’s 2024 survey indicated a marked shift towards larger players and full outsourcing, amidst evolving regulatory landscapes like the European digital operational resilience act.

A key trend in the outsourcing practices of the Luxembourg financial center, where 90% of activities are outsourced, was revealed in the latest edition of PWC Luxembourg’s sourcing strategies survey, released on Monday 8 January 2024. However, the main driving force behind this transition, in anticipation of the European Union’s imminent digital operational resilience act (Dora), was focused on quality and expertise rather than cost in outsourcing decisions, stated PWC in the .

Outsourcing, a dominant practice among financial institutions irrespective of their size or sector, is evolving. Institutions are moving away from partial outsourcing and opting instead for full outsourcing of activities. This trend aligns with the broader industry objective of balancing efficiency with cost-effectiveness.

With the enforcement date set for January 2025, the sector is preparing for the compliance challenges ahead.

, clients and markets leader at PWC Luxembourg, highlighted in the report the impact of persistent inflation, high interest rates, geopolitical instability and the pressing issue of climate change as some of the key challenges. Liégeois emphasised the critical need for financial institutions to scrutinise their operational models and enhance efficiency to remain agile in this evolving context, especially considering the influence of new technologies like artificial intelligence.

The survey also shed light on the anticipatory changes happening in the outsourcing landscape due to the forthcoming Dora. The asset and wealth management industry, particularly pressured to optimise operations, is at the forefront of adopting outsourcing strategies.

However, the surge in outsourcing brings its own set of challenges, notably the regulatory uncertainties initially presented by the European Banking Authority’s 2019 outsourcing guidelines and Luxembourg’s Financial Sector Supervisory Commission (CSSF) circular. The introduction of Dora adds complexity, necessitating enhanced due diligence and oversight, particularly in managing outsourcing chains, the consulting firm said.

The report highlighted a divergence in strategies within the Luxembourg financial sector, with businesses either fully embracing or completely abandoning outsourcing due to regulatory pressures. This shift raises concerns about concentration risks associated with relying on single, large contractors, an issue that resonates with Dora’s emphasis on oversight and monitoring.

Liégeois noted that the degree of understanding of Dora varies among respondents, but the sector’s forward-thinking approach is evident in its preparation for the regulation. She asserted that entities that prepare in advance for Dora will benefit significantly once the regulation is enforced.

PWC Luxembourg, employing over 3,700 people, is one of the largest professional services firms in Luxembourg, offering a range of services including audit, tax and advisory, encompassing management consulting, transaction, financing and regulatory advice.

Related articles