“Banks should play the game of the Luxembourg economy,” says MP (CSV). “We can’t claim to be one of the most important financial centres in the world and companies can’t even open a bank account.”
In a parliamentary question on 27 January this year and then in an interpellation in the chamber in March, the MP warned of the difficulties encountered by companies who are in the process of establishing themselves when they want to open a bank account with a Luxembourg bank.
However, it is difficult to appreciate the extent of the phenomenon. Luxembourg’s Financial Sector Supervisory Commission (CSSF) acknowledges that it is “aware of this problem, but does not have any data on the extent of the problem.”
Increasingly difficult
The Luxembourg Bankers’ Association (ABBL) also stated that “there are no statistics on this subject.” From its point of view, no “generalised trend” emerges and, if such a phenomenon exists, it remains “marginal”: “a few isolated cases have indeed been reported to us,” the ABBL said.
However, on the ground, the phenomenon seems quite palpable: “Opening a business bank account is more difficult today and takes longer to achieve than it did a few years ago,” said the CEO of the Luxembourg House of Financial Technology (Lhoft), , who has noted an intensification of the difficulties from 2019. “Banks are more cautious,” he explained, and due diligence procedures are becoming more cumbersome. Especially since “Luxembourg banks are quite strict in their approach.”
A public petition was also on 19 January on the subject. “It is not uncommon for opening an account to become an obstacle course for a new structure,” noted the author of the petition, who is calling for “the legislator to impose a minimum banking service,” as in Belgium.
A Luxembourg Iban needed
But why not open an account in another EU country? In fact, “the location of a company’s bank account is not governed by law,” the ministry of finance noted in its reply, published on 2 March, to Mosar’s parliamentary question. “There is also no legal basis for requiring a Luxembourg Iban only,” referring to an international bank account number.
However, opening a Luxembourg bank account remains a de facto condition, stated Zubairi: “When you go to register your company, the notary will ask you to have an Iban with the LU code. Therefore, everyone needs to have a local bank account in order to register a company here.”
There is a lack of competition in the banking sector, and the fact that you need a Luxembourg bank only makes the situation worse.
In its reply to the parliamentary question, the Chamber of Notaries was careful not to confirm such an obligation: “Notaries accept blocking certificates issued by both Luxembourg and foreign banks,” it told the ministry of finance. However, the finance ministry added that “it has been reported that difficulties may arise when the notary has to check the signing powers of the signatories of the blocking certificates of foreign banks, as the latter may be reluctant to provide their list of signatures or to provide a blocking certificate that complies with Luxembourg law.”
Five banks to choose from
This in fact tends to favour the choice of Luxembourg banks and makes things “difficult,” according to Zubairi. In Luxembourg, the choice is indeed “limited” to five banks when “a country like Germany has about 2,000 banks.” “There is a lack of competition in the banking sector, and the fact that you need a Luxembourg bank only makes the situation worse, because it means you can only go to one of the five banks,” said the Lhoft CEO.
However, “the bank does have a mission,” said Mosar, who would like Luxembourg banks to be more willing to open such accounts. In reality, though, “a bank is free to decide whether it wishes to enter into a relationship with a client or not,” explained the CSSF. “This is a purely commercial decision by the bank.”
This was confirmed by the ministry of finance: “The modalities for opening bank accounts are guided by the commercial policies of financial institutions and by their internal risk management policies. In this context, the state can neither restrict the contractual freedom of banking institutions nor dictate to them what their risk tolerance should be.”
Regulation or loss of revenue?
Mosar nevertheless put forward a radical solution: “Shouldn’t there be an obligation to open an account for a company?” he proposed. “Of course, in compliance with all the regulations, particularly on money laundering. But as long as a company meets the conditions, it should still be able to open an account…”
I cannot accept that companies can no longer open an account.
According to Mosar, if the banks are reluctant, it is not due to a problem of regulation, but because of a lack of revenue. “More and more accounts are generating too many fees compared to what they earn,” he said. “In that case, if they have to, the banks should charge companies for these services--but I cannot accept that companies can no longer open an account.”
However, the European Central Bank’s interest rate hike should alleviate this problem. “With interest rates at 0%, using a deposit account was a cost to the bank. Perhaps now the situation will change a little,” said Zubairi.
Finding the balance
Moreover, from a regulatory point of view, “banks are independent entities and if they choose to be prudent, there is nothing we can do about it,” admitted the CEO of Lhoft, especially since this approach has its advantages. “It’s important to be rigorous in terms of due diligence, because we have a reputation to protect, so we want good, solid companies.” However, it is about striking a better balance between prudence and “stimulating business" through simplified procedures--“faster, cheaper, more efficient.”
Above all, the need for a LU Iban, as demanded by notaries, must end. Or, at the very least, competition between Luxembourg banks should be stronger. “It’s a closed network here,” argued Zubairi. An example, admittedly “extreme,” could serve as inspiration: the United Kingdom. A country where registering a business “costs £60 and takes 20 minutes” online. And where the profession of notary no longer exists.
This story was first published in French on . It has been translated and edited for Delano.