In its recently published annual review, Luxembourg for Finance (LFF) has reflected on the significant growth experienced by Luxembourg’s financial industry in 2019.
The LFF annual review revealed that Luxembourg’s two financial services regulators issued 119 new licences in 2019. The Commission de Surveillance du Secteur Financier (CSSF) issued 111 new operating licences to a variety of global asset managers, private equity firms, banks and payment institutions, with a further eight licences issued to insurance companies by the sector’s dedicated regulator, the Commissariat aux Assurances (CAA).
In the banking industry, despite undergoing a period of consolidation across Europe, five new banks set up activities in Luxembourg: Banking Circle, RBS International and Northern Trust all received new banking licenses, whilst HSBC and Barclays opened new branches. Among them, Banking Circle created their new global headquarters in Luxembourg, allowing their clients to scale projects internationally using their financial utilities. Northern Trust established its EU bank in the Grand Duchy under the form of a "Societas Europaea", with branches in the UK, Netherlands and Sweden.
The annual review also showed that, since the Brexit referendum in 2016, Luxembourg has seen a spike in interest from firms planning for their future EU and cross-border activities. While some 60 financial companies have publicly announced the relocation of activities to Luxembourg due to Brexit, the actual number is over 70, according to LFF, including those that have not yet publicly announced their decision to relocate.
A further Brexit outcome according to the report is that Luxembourg law is increasingly being chosen by international institutions active in financial markets, notably the EU and the European Atomic Energy Community (EURATOM) in their debt issuance programmes. Similarly, the European Stability Mechanism (ESM) has announced that it will exclusively use Luxembourg law going forward, whilst the European Investment Bank (EIB) is moving from English to Luxembourg law for its lending activity.
Commenting on the past year, Nicolas Mackel, CEO of LFF, said: “Luxembourg’s financial industry has continued to grow in 2019 and we are delighted that so many businesses have chosen to base and increase their activities here. It is clear that the Grand Duchy is a location of choice for a widening range of financial services, as well as an EU hub for firms considering their post-Brexit plans".
A standout feature of Luxembourg’s financial industry in 2019 was, according to LFF, a surge in sustainable finance activities. Most notably, June saw the World Bank choose to list all 174 of its sustainable development bonds in Luxembourg. Moreover, one-third of all green bond listings worldwide were listed on the Luxembourg Green Exchange (LGX) in 2019, adding €72 billion in new listings. Indeed, the LGX more than doubled its total green, social, sustainability and ESG securities from 252 to 558. Other social and sustainability bond listings also witnessed significant growth, increasing from just 40 to 248. LGX now displays over 610 securities worth more than €216 billion.
Similarly, the number of investment products labelled by the Luxembourg Finance Labelling Agency (LuxFLAG) grew by 78% last year, reaching 183 labelled investment products across seven jurisdictions, representing €72.5 billion in assets under management. These labelled products are managed out of fourteen countries.
In the area of Fintech, the Grand Duchy established itself as Europe’s destination of choice for major payments firms. For instance, in late 2019, AirBnB was granted its licence to process all EU payments in Luxembourg. The company joined other leading international payments institutions operating out of Luxembourg such as PayPal, Amazon Pay, Banking Circle, Rakuten, Satispay, PPRO, Six Payment Services and Alipay. In total, twelve payment and nine e-money institutions have now chosen Luxembourg as their hub to serve the EU market.
2019 also saw the Luxembourg House of Financial Technology (LHoFT) increase the number of Fintechs it hosts, from 44 to 67 businesses, and the Fintech platform has grown its total membership to 142 (compared to 100 in 2018). These members have raised over €214 million in funding since 2017. According to LHoFT, there are now 214 Fintech firms operating in Luxembourg.
Asset management, alternative investment and insurance
LFF also reported that assets under management (AuM) in Luxembourg domiciled funds now total €4.7 trillion ($5.2 trillion), thus strengthening Luxembourg’s position as the top fund centre in Europe and second globally to the US. Over 500 fund promoters have set up around 3,800 funds in Luxembourg, which are being sold in 73 jurisdictions around the world. In addition, 98 of the 100 largest European asset managers have Luxembourg-based funds.
During 2019, Luxembourg saw an influx of alternative investment firms choosing the country as their preferred jurisdiction, with 68 new managers licensed in Luxembourg. As a result, 19 of the 20 leading private equity firms now have operations in Luxembourg, with AuM in domestic private equity funds growing 19% year on year, while the number of funds worth more than €1 billion more than doubled. Indeed, the private equity market saw further growth with limited partnerships steadily increasing from 2,517 at the beginning of the year to 3,357 in November 2019.
Growth in activities
The LFF annual review also revealed that 2019 saw a 10% growth in new investment firm licences granted, signalling a trend in the Luxembourg asset and wealth management ecosystem, with an increasing range of activities, including more brokerage, investment advice and private portfolio management. For example, Interactive Brokers established a new entity in Luxembourg in order to provide such services to its European clients. Similarly, Swiss Re Capital Markets Europe was established in 2019 by the reinsurer’s commercial risks division, to provide a stable base from where the company can continue to transact sophisticated financial instruments with trading partners in Europe following Brexit.
Similarly, the insurance sector continued to expand at a considerable pace. Driven by the ongoing relocations of insurance firms in the context of Brexit, Luxembourg’s non-life insurance sector experienced a growth in premiums of over 200% and overall insurance sector growth of around 50% in the first three quarters of 2019.