“The government will continue to actively support the development, diversification and promotion of Luxembourg’s financial centre in all its dimensions and to maintain as its primary objective to move up the value chain in its various fields of activity (banking, insurance, fund industry, capital markets).” The first paragraph of the government agreement says it all: nothing about it stands out. It could have been found, word for word, in any party coalition agreement.
Broadly speaking, all seems under control for the financial centre: virtually of all the measures announced are extensions of existing policies.
In the chapter of the coalition agreement devoted to the economy, there is a declaration of intent in the same vein: “The financial sector will continue to be a fundamental sector of our country. However, efforts to diversify our economy will be stepped up, while focusing on the dual transition to digital technology and the environment.”
Innovation and greening
Green finance, gender finance, blended finance, fintech and digital assets will continue to be promoted with the aim of making Luxembourg as indispensable in these sub-branches of financial activity as it is in the investment fund and cross-border life insurance sectors. Will these niche activities boost the attractiveness of the country’s financial centre? It will be a challenge.
To meet it, Luxembourg’s famous “toolbox” will continue to be adapted. Since at least 90% of the legal framework for financial activities is decided in Brussels, however, it is in the European capital that a great deal of activity will have to be deployed to ensure that Luxembourg’s voice and interests are not ignored.
Many players in the Luxembourg financial centre would like to see a stronger presence for their representatives. Some of them express regret that Luxembourg MPs are not very involved in the subject and are deserting the “good” committees of the European Parliament.
Philosophically, the government is reverting to the principle of “the directive, the whole directive and nothing but the directive,” a principle that Pierre Gramegna (DP) left behind during his almost ten years as finance minister. Of course, the context was different then: Luxembourg had to make amends for its previous practices which, even if legal, had become difficult to accept from an ethical point of view. Nevertheless, this rather more enthusiastic era seems to be over.
Also in the name of competitiveness--and as foreseen--the subscription tax with its billions in tax revenue has not been abandoned, although the time has come to reduce it. Both Ucits/ETF funds--i.e., passive management products--and investment funds active in sustainable economic activities can expect reductions in their tax burdens. These reductions will not be automatic, however; they will depend on the health of public finances and on the results of an impact study.
The subscription tax is not the only tax criticised by the industry: the cost of regulation, along with the supervisors themselves--the CSSF and the Insurance Commission--are another, less publicised, issue.
“The government will carry out a study of the governance and funding structure of the CSSF and the CAA with a view to finding a funding model that reconciles the needs of the two authorities, the maintenance of their independence and a reasonable level of taxation,” says the coalition agreement.
Finally, two key structures will be reformed in the coming years: the National Credit and Investment Company (Société nationale de crédit et d'investissement or SNCI) and the High Committee for the Financial Sector (Haut Comité de la place financière), whose roles will be strengthened and working methods reviewed.
This article was originally published in Paperjam. It has been translated and edited for Delano.