“An unprofitable bank is a dangerous bank”

Claude Marx's sees his mandate at the helm of the CSSF extended through February 2026 Nader Ghavami/Maison Moderne

Claude Marx's sees his mandate at the helm of the CSSF extended through February 2026 Nader Ghavami/Maison Moderne

Claude Marx sets out for a second term at the head of the Luxembourg financial regulator CSSF. He took the opportunity to take stock of his first term and to look at his priorities and the challenges that the financial centre will face over the next five years. 

Marc Fassone: You are finishing your first mandate at the head of the CSSF. What is your personal assessment of these 5 years? During this period, what are the changes or developments that have most impressed you?

Claude Marx: First of all, I would like to go back to my first impression when I arrived at the CSSF and met the teams. Of course, I knew the institution. The CSSF enjoyed and still enjoys an excellent reputation in the grand duchy: that of an authority that is both rigorous, but also efficient and accessible. However, I was surprised by the extreme competence and also the amount of knowledge within our house. And this allows me to bridge the gap with one of the impulses that I wanted to give: we had the know-how, but we still had to make it better known. This is why I have invested a lot of time to explain, during conferences, seminars, training courses and through interviews, the way we work, our expectations today and in the future, in particular on subjects such as financial innovation and sustainable finance, regulatory developments, trends in the financial center, etc., and also to encourage our teams to see education as an element of our risk prevention and risk management work.

But the CSSF to which I came was also an institution undergoing major change. Remember that it was not until November 2014 that the Single Supervisory Mechanism was created, which gave the European Central Bank a whole new role in banking supervision. At the same time, following the financial crisis of 2008-2009, the regulatory framework was also strengthened in all areas. While we speak legitimately of the weight of regulation for financial market professionals, the same is true for supervisory authorities. Our field of expertise is constantly expanding. The number of laws and regulations that we have to enforce as well. When I took office, my analysis was that we needed to increase our workforce by 50% to cope with this development. We got there, we succeeded, thanks to a significant collective effort to recruit and integrate more than 300 new employees, newly graduated or with solid professional experience. Apart from gender parity, we have as many Luxembourgish employees as foreigners. It is a great opportunity to be able to recruit specialists from all the countries of the EU!

I will not be complete in talking about the events that marked my mandate if not citing topics like Brexit, or the management of the covid pandemic. But what I am most proud of is that together with the management team with whom I was lucky enough to be able to surround myself, we have set up an ambitious program to make the CSSF 21st century fit by implementing our CSSF 4.0 transformation strategy. 

What are the priorities of the CSSF?

Our priority remains to accomplish a double mission: to ensure the stability of the financial system (mission shared with the Central Bank of Luxembourg) and to ensure the protection of consumers and investors. In this context, the issue of credit risks and the liquidity of financial products is particularly sensitive. The situation in the investment fund industry over the past 12 months has reminded us of this. We pay close attention to the application of the new regulations regarding fees and transparency.

The fight against financial crime also has an important place in our mission. We apply it by taking a risk-based approach.

We ensure that the supervised entities have a viable business plan. Such a priority may seem surprising for a regulator, but it remains one of our major concerns. In recent years, we have seen a relative increase in spending greater than the relative increase in revenue. This is called a ‘negative jaw’. This trend is likely to continue, in an environment of low interest rates and high operational costs, but the proper use of new technologies could help the industry to reverse the trend.

All this does not prevent us from giving impetus to future themes such as financial innovation, sustainable finance or even financial education. Indeed, I am convinced that the CSSF can play a decisive role in these areas.

I am particularly proud of the work that has already been done in financial innovation in recent years. I will cite as an example the cloud computing framework with which we have provided the financial sector and which has enabled the financial center to take a certain lead, as well as the white paper on artificial intelligence that we published and which has a lot of resonance within the market. Today, the CSSF's priority is to closely monitor the level of penetration of new technologies in the Luxembourg financial sector, through market surveillance, exchanges with stakeholders, networking and discussions. with incumbent operators and fintechs, missions to which our newly created innovation hub is working.

In fact, we need to combine two postures: that of the facilitator who accompanies the movement and that of the guardrail which ensures that it develops in accordance with the rules of stability and consumer protection.

In terms of sustainable finance, we are focusing our efforts on supporting ongoing initiatives, such as the European Commission’s Green Deal or the Luxembourg Sustainable Finance Initiative, awareness raising and education. We have also set up an internal group dedicated to sustainable finance whose mission is to support the transition of the financial sector. This group develops guidelines and recommendations in particular, in the absence or before the adoption of a full level 1 or 2 regulation. A few years ago, we joined the Network for Greening the Financial System, a network of about 90 central banks and prudential supervisors.

We also have a national financial education mission. In this context, two years ago we launched the letzfin.lu site, which is an information platform for the general public, applications for managing a family or individual budget, and educational games. Today we have projects aimed at supporting the elderly, so that they feel at ease in a banking world which increasingly uses online services and educational projects in sustainable finance for the youngest. By combining financial education, digitalisation and sustainable finance, we are in a way closing the loop.

The fight against cybercrime is another of our priorities. In the years to come, we will see more attacks and more sophisticated attacks from supervised entities, but also from the CSSF, by individuals, criminal organisations and even states or with state complicity.

The covid-19 pandemic has disrupted the normal course of business. What is or will be its impact on the market, especially in terms of relocation and business perspectives? Are we facing a "game changer" or rather an accelerator of trends already observed?

First of all, it is necessary to take stock of the pandemic at the level of the financial centre. While this crisis remains above all a human tragedy and is far from over--we continue to closely monitor the situation with regard to credit defaults, moratoriums, distribution of dividends, as well as the liquidity of investment funds--we have also seen good resilience of the market until now. Likewise, in organisational terms, even if some players took a bit longer to take off, we did not see any major problems. All the players ensured the continuity of their operations, in particular because of the business continuity plans that had been put in place.

While the financial sector was partially at the origin of the 2008-2009 crisis, it fully played its role during the pandemic to support the economy and households and thus reduce its effects.

The pandemic is an accelerator of movement in terms of digitalisation and new ways of working. Teleworking will become commonplace. I'm not talking about being in a constant home office but working from home one or two days a week. We wish to support this trend which meets the expectations of many employees in the financial sector and also those of the majority of entities. If teleworking is well organised, it will contribute to employee satisfaction and motivation, and everyone will benefit--also the environment because of less traffic. But we need to supervise it, so that the risks in terms of security and confidentiality are controlled and that the necessary substance remains guaranteed in Luxembourg. 

What are the challenges facing market players today? 

Market players have to respond to the double challenge of profitability and digitalisation. The two are linked.

I am sometimes criticised for saying that the number of banks or investment firms is still too high in Luxembourg. Far be it from me to wish one bank or the other to disappear. But simply from the point of view of prudential supervision: an unprofitable bank is a dangerous bank! Let me explain: an unprofitable bank--this also applies to any other financial service provider--will seek profitability by taking reckless risks and endangering the assets of its customers. However, this is not acceptable, neither for the stability and reputation of the financial centre nor in terms of consumer protection.

Why are entities not profitable? It is often a question of size. They cannot support the necessary investments, in particular to carry the weight of regulation or to keep pace with the necessary investments in ICT. But size isn't the only thing to consider. Many players also have a business model that is no longer suitable or are simply looking for one [model].

As I have already mentioned, investment in new technologies, digitisation, the use of artificial intelligence are also part of the answer to the question of profitability. The more players can automate their processes, the more profitable they will be. People often ask me about the impact of this digital transition on human resources. Well yes, like any industrial revolution--and we are indeed in the midst of an industrial revolution--low value-added workstations will initially disappear. But as in any other industrial revolution others will be created. But it is the whole of society that must prepare to seize the new opportunities that will emerge. And it starts with the education of our children. It is essential that school curricula take this revolution into account and prepare children for new jobs.

The school system for probably the last 200 years was based on the acquisition of a mass of knowledge. Today we must focus more on teamwork, soft skills, creativity, in short, everything that a computer cannot do or does wrong, as well as learning new technologies. Everything will not necessarily happen within the school curriculum. There are extracurricular initiatives, such as the Luxembourg Tech School, which are very important. We also intend to make our contribution. Together with other players in the market, we are supporting an initiative of the School of Commerce and Management aimed at setting up a BTS in finance in which the emphasis will be particularly placed on the skills to be acquired for jobs of the future within the financial centre.

I would like to end on a positive note. The current situation will offer opportunities to local professionals, particularly through consolidation. Fewer players does not necessarily go hand in hand with less business. In addition, I remain convinced that the entities in place--in any case those which will be able to board the digitalisation train on time--will have good cards to play compared to new entrants. It is in fact easier to “digitise” financial know-how built up over several decades than to graft financial expertise onto technological know-how.

The OpenLux investigation highlighted a possible lack of resources for the CSSF to carry out its mission. Do you agree with this assessment? And more broadly, are you in favour of strengthening your resources and in what direction?

The CSSF now has sufficient resources to accomplish its missions, whether in terms of human resources or powers to intervene. The OpenLux case is interesting because it has its origins not in the disclosure of confidential information, but in the exploitation of publicly accessible databases, such as the commerce register and the register of beneficial owners. The grand duchy has been somewhat undermined not because it cultivates secrecy, but because it offers transparency more than some other countries where journalists have had difficulty accessing certain information.

However, the OpenLux affair, like other previous investigations, has shown that certain malicious people abuse the Luxembourg financial centre, and that constant vigilance remains the order of the day. Zero risk does not exist, neither in Luxembourg nor elsewhere, but by improving controls at all levels, by adopting a risk-based approach, and by collaborating efficiently between local authorities and with the authorities of other countries, we can and should further reduce the risk of abuse.

The CSSF, like the other market players, should continue to invest in the constant review and automation of our processes, whether in terms of monitoring and analysing the data transmitted to us, or in the exchange with supervised entities. We are therefore pursuing various interesting projects in terms of the use of artificial intelligence, which I hope will bear fruit in the next few years.

This article was originally published on Paperjam and has been translated and edited for Delano.