If Helena Finn had to categorise upcoming regulation into three main hot topics, it would be digitalisation, a focus on financial crime and overall more prudential market supervision. The Allen & Overy counsel, who advises on insurance and reinsurance regulatory matters, said in an interview that there’s been an increase in the regulatory burden in the past year, with a number of texts also centring on ESG.

Her colleague, Andrei Costica added that the fact there are so many texts “shows the fact that both banking and insurance sectors are under scrutiny by regulators and legislators at the same time. It implies that for some actors, it will be a bit of a challenge to ensure compliance with this wave of regulation that has been adopted in recent years, but with this regulation there is better market protection, better stability and new opportunities at the same time.”

Costica, a senior associate who also advises on regulation in the areas of AML/CFT, Mifid II and PSD II, said that there’s a clear trend towards the adoption of digital products. He believes that the EU financial data access and payments package--published in June 2023 and aimed at putting consumers’ trust and interests at the centre of e-payments, which reached a value of €240trn in 2021, accelerated by the covid-19 pandemic--will be increasingly under the spotlight as well.  

But it’ll be more of an evolution, not a revolution, he explained: “It will not fundamentally rock the payments landscape, but it will bring some interesting changes. The key points that will impact players are a host of anti-fraud measures, meant to deal with the prevention of new and complex fraud, e.g., social engineering… and ensuring a level playing field between banks and traditional actors in the payments field and other service providers.”

Considerations on proportionality

With increasing regulation come other challenges, which may be particularly burdensome on smaller entities. Not only are there additional costs to be considered, but, as Finn noted, “we need people who have the expertise to be able to implement the text. When we’re talking about certain texts, they require having a new person in charge of that function.”

Luxembourg’s insurance and reinsurance association, Aca, had published a prior to October’s national elections, including proposals to tackle the sector’s talent shortage. But Finn said that another major point is that the struggle for smaller firms is more intense than on larger players, to the point that “we’re actually seeing a concentration in the market on small actors being merged or sold, with one of the points being because of this regulatory burden which is imposed on them.”

Nevertheless, as Costica pointed out, “in some of the proposals, they do make reference to the fact that there may be flexibility on several of the requirements for smaller entities.” One case in point is the Digital Operational Resilience Act (Dora), which sets out to harmonise digital resilience rules across member states and will be applicable as of 17 January 2025. Dora includes proportionality principles so that the application of ICT risk management and resilience testing requirements should be more flexible for smaller entities.

Luxembourg as a leader

Despite talent challenges, both Finn and Costica think Luxembourg can continue to be a leader in certain areas of expertise, not only in terms of the level of those involved in the financial industry and the regulatory space, but also the nature of the players who set up in the grand duchy. Looking at payments, for instance, Costica stated, “The most significant payment players are based in Luxembourg. They’ve developed a very strong ecosystem, and Luxembourg does have a voice in the EU payments landscape.”

Finn said it’s similar for the insurance sector, which further developed post-Brexit. “We actually have a specific regulator in the insurance sector, which is really dedicated to insurance, separated from the financial regulator, which is quite a specificity in Luxembourg and is also a very strong point in developing in the future.”