Fortis and Dexia

The financial crisis nearly forced two of Luxembourg’s biggest banks, Fortis and Dexia, into bankruptcy, which led to a public outcry and further eroded trust in banks. The crisis hit the two groups especially hard at the head-office level. Further, their Grand Duchy divisions, unlike most other foreign subsidiaries in Luxembourg, had substantial domestic retail operations.

‘Dexia-Bil’, the oldest bank of the Grand Duchy, and Fortis, formerly Banque Générale du Luxembourg, were of “focal importance for the national economy”, says Jean-Marie Majerus, a history teacher and professor at the Robert Schuman Centre for European Studies and Research.

Jean-Claude Juncker, then prime minister of Luxembourg, said in a TV address in late December 2008: “Had they disappeared, the consequences for the national economy could not have been worse.”

In 2009, Fortis and Dexia lost access to interbank and money markets due to solvency concerns, triggering support from the Belgian, French, Dutch and Luxembourgish governments through capital injections and debt guarantees. The total state contribution involved in saving the two banks amounted to €22.9 billion, of which €2.9 billion was provided by Luxembourg.

The support also included emergency liquidity assistance and state guarantees on certain bank liabilities and impaired asset portfolios, which came with several conditions, including on liquidity ratios and restructuring plans.

“Some banks had to be saved by public funds,” Alain Hondequin, General Counsel Business Clusters at the Luxembourg Bankers’ Association (ABBL) recalls, pointing out that BIL and BGL required state support, still visible “in the remaining shareholdings of the Luxembourg government in these banks”.

In addition to the crisis experienced by the two systemically important banks, the Luxembourg subsidiaries of three Icelandic banks also faced severe liquidity strains directly linked to their parent companies. They were quickly placed under suspension of payments, being at the time subject to resolution procedures.

The Luxembourg subsidiaries of German Landesbanken also went through a restructuring process during the crisis, having suffered large investment portfolios losses related to their focus on investment banking.

The crisis had a major impact on the financial industry and led to the creation of several pieces of regulation. This was the first wave of supervision that came in the immediate aftermath of the crisis, also reinforced by political pressure. Much of this regulation, according to Heinrich, would put Europe’s financial sector in a straitjacket.

“Stronger regulation was certainly needed, but the political urge to be seen by the public to be acting was too large,” he says, arguing that “too little time was used to make impact assessments, to look at the aggregate impact of some of the new regulations and check that all the new regulations were a coherent whole”.

“We got insistent message that this created an enormous additional cost,” he said, adding that the sector was warning the government “it wasn’t necessarily addressing the problem – some of the regulations created administrative burden without necessarily leading to results.“

Once the first changes were implemented, some of the regulations showed “implementation weaknesses or gaps” that needed to be corrected, according to Hondequin. This is why the financial sector has had to face new versions of directives such as MiFID II and PSD II. “They’re all correctives being brought to the regulations and the way they were conceived in the immediate post-crisis,” he adds.

Julian Presber, coordinator for financial-market relations at the University of Luxembourg, says regulation was “the single biggest driving force around the industry, around its cost curve, around the know-how it needs to maintain its business models”.

Heinrich recalls the difficulties experienced by Luxembourgish representatives in some talks at the European level to make these points, given that “there was very little sympathy for the financial sector”. He also points out how betrayed, disillusioned and unhappy the public felt with the financial sector. ‘’If, in negotiations, you would try stand up and plead the case of the financial sector, that didn’t carry a lot of weight,” he says. “There was a credibility issue.”

In his view, some EU countries used the context of frustration and betrayal to “push their own strategic agendas” and exploited political discussions to ensure “the new rules put in place would be helpful to develop a competitive advantage for their respective financial industries or to capture new business”. In these international discussions, “the countries that showed some understanding for the concerns of the financial sector and broader impact of a crackdown on economic growth and financing conditions were clearly in a minority.”

Fabio Trevisan, a partner at Luxembourg-based law firm Bonn Steichen & Partners, says the model adopted by Luxembourg’s banking sector for many years had been “based purely on secrecy, on confidentiality”.

“Luxembourg,” he adds, “has gone from a whole different business model – up until 2010-12 – to a completely transparent and open model, where full compliance is the only possible way forward and where, politically, it has been decided not to continue with the old banking secrecy.”

Gerard Laures, tax partner at Luxembourg-based consultancy KPMG, shares the view, arguing that, over the last 10 years, “regulation was the first driver of change, while the second driver was triggered by tax transparency”.

Georges Heinrich, Luxembourg’s former head of treasury, says the financial crisis was “an accelerator for the discussion on tax”, particularly for the private banking sector, leading to talks on “the taxation of capital more widely”. He adds: “Without the financial crisis, there would have not been the political momentum to take the debate on banking secrecy, the taxation of capital and tax transparency all the way to their conclusion.”

He claims talks held at the time, at the G20 level and within the EU, were “not really sincere” given that the goal was not always to find a solution that would allow for a fair and efficient taxation system. “The financial crisis, the ballooning deficits – particularly in large countries – the ensuing need for more tax revenues and the widespread anti-finance rhetoric all created a certain ‘populist’ context in which the political discussions could thrive.”

These populist discourses had a “profound impact” on how business models were structured in the Grand Duchy. They also led to a change in business models, according to Laures. He says pressure from financial regulators has increased since the crisis, which opened a “certain discussion on the tax side to change the way banks were working within Europe”.

In Luxembourg, “abandoning banking secrecy has led to change” Laures says, outlining that banking secrecy had been transformed into a “banking confidentiality” concept. ‘’Banks still preserved confidentiality but no longer vis-a-vis foreign tax authorities.” In other words, banks were no longer able to accept clients hiding from their own national tax authorities.

ABBL’s Hondequin says the impact of this was very important for the banking sector, “not because banking secrecy disappeared but because professional secrecy as we knew it was more limited”.

For instance, tax fraud has become a primary offence in money laundering, according to Laures, who says banks now have to play a role in analysing whether their clients might be involved. “Last year, Luxembourg introduced the notion of aggravated tax fraud,” he argued, adding that banks are working on this point and trying to set up processes and procedures to see if clients are potentially committing tax evasion or using the bank for such purposes. “It is also in the focus of the regulator,” he says.

But the level of transparency available today was achieved progressively, with exchange of information first available on demand and based on a suspicion. Only later did the industry adopt the automatic exchange of information. For Laures, the demand for greater transparency originated at the G20 level, with strong support from the US. “It was the Americans who were opening the doors with FATCA. Later, it was the G20 coming, and then it was taken over by both the OECD and the European Commission.”

Many European states were already operating an automatic exchange of information on interest payments since 2005, with Austria, Luxembourg and Belgium being the only countries to remain under a regime of withholding tax on interest until 2015. After the financial crisis broke, several countries, including Luxembourg, came under pressure after they were placed on a grey list.

“Luxembourg was on the grey list and took this very seriously and changed these laws and allowed the exchange of information,” Laures says. In Luxembourg, from 2010 onwards, “you could clearly feel you had to prepare gradually for a political change also on those topics, that the days of the ‘coexistence model’, withholding tax and exchange of information, were numbered.”

In 2013, Luxembourg began shifting towards the automatic exchange of information to comply with international standards on tax cooperation. Given the gradual transition, banks in Luxembourg had time to change their business models, “to change contracts” and create a process for tax conformity for their clients, most of whom were based outside the Grand Duchy.

At ABBL, Hondequin outlined that, despite the fact that professional secrecy remained ingrained into the banking law, Luxembourg banks were given time to prepare and respond to the changes imposed among others by automatic exchange of information, thereby adapting their systems and re-thinking their business models in light of this new regulatory reality.

While banks started to work on tax transparency rules and measures back in 2012-13, Laures argues that, today, in Luxembourg, “we are in a situation when the remediation is behind us for most of the banks”. Nonetheless, he has his doubts about the efficiency of the automatic exchange of information, where a bank “sends information to the left, right and centre, throughout Europe and the world”.

According to Heinrich, the creation of the banking union was a “corollary of the regulatory changes” implemented in the aftermath of the financial crisis. In 2007-08, he recalls, the perception of the financial sector “came under fire” in many countries, including Luxembourg. Following the crisis, the public developed a very negative perception of the financial services industry.

“’We don’t want to pay for your crisis’,” was the slogan of this movement, he says, adding that people were unwilling to pay for “what went wrong in the sector – the bad deals, bad advice and the mis-selling”. While the uproar was very loud in countries like Germany and France, “it was a little ironic and paradoxical for people in Luxembourg to adopt a similar attitude”.

Heinrich says that, while in the decades prior to the crisis, the Luxembourgish population generally “benefited a great deal in terms of improvements of their standard of living from the positive dynamics of the financial sector”, when those dynamics turned negative, “nobody wanted to share the spoils anymore”.

The irony, according to Heinrich, was even greater since, in Luxembourg, there were “not really any instances of unethical or unprofessional behaviour in the banking sector, making customers bear undue risks or violating their trust”. With the possible exception of the Icelandic banks, no banks in Luxembourg “speculated or did deals that would have undermined the financial solidity of the bank to the point of causing a break down”. He adds: “No bad models or misbehaviour took place in Luxembourg.”

Due to the various changes in rules – and because Luxembourg’s neighbouring countries established many tax amnesties and avenues for private clients to come clean with their local tax authorities, many wealth management clients decided to close their accounts in the Grand Duchy.

”They had the possibility to repatriate funds, and this repatriation definitely had an impact, particularly on affluent clients,” Hondequin says. “Obviously, servicing those clients was not exactly the same need – those clients could be served by their local bank.”

Luxembourg’s private banking activities couldn’t compete with national centres in servicing affluent clients simply because this type of client could find satisfactory services as premium retail clients in their home countries. This change in client base for private banks pushed banks to shift their business models towards ultra-high-net-worth-individuals (UHNWIs) with international needs. “There was an evolution of the private banking sector,” says Hondequin, “not only in the asset size and volume of assets under management but also in the types of clients”.

Nonetheless, despite a decrease in the overall number of clients that banks were servicing, the private banking sector didn’t experience a “decline in assets” but “quite the contrary”, currently amounting to €361 billion. Hondequin adds: “Because banks shifted their business models towards UHNWI, they had fewer clients, but they were clients with more assets.”

KPMG’s Laures shares the view, saying local based banks have shifted their attention towards “fewer but wealthier clients”. Based on the sector’s current assets under management, “Luxembourg is doing pretty well, if one compares with Switzerland”, an established international private banking hub.

Banks adapted their business models towards serving wealthier clients,the UHNWIs, Hondequin argued, but servicing wealthier clients with more sophisticated and tailor-made needs also meant having to cope with a certain pressure on margins compared to higher margins earned with affluent clients.

While servicing affluent clients tends to require more standardised products and processes, for UHNW clients “banks had to gear up their services and make substantial investments, both in upgrading systems and training staff, for these particular client segments since their needs are quite different and certainly more complex,” according to Hondequin.

Some of the largest clients, he adds, are “almost institutional clients and demand different types of services – more bespoke, less standardised products”.

Products designed for residents of one country or market do not necessarily suit clients residing in another jurisdiction.

“Banks had to reconsider servicing clients from a large number of countries,” Hondequin says, adding that running a cross-border private banking business is complex.

Faced with increasing costs and clients demands, with international business exposure, banks had to identify key markets where they wanted to be present, while clients from other markets were either no longer serviced or served passively only. Hondequin says that, while banks in Luxembourg might have different core markets, one of the strengths of the local sector was the exposure to and strong links with other EU countries.

To cope with narrowing margins and increasing regulation, some Luxembourg banks have reviewed their footprints and even changed their legal status. Hondequin points out that some transformed their legal status from a subsidiary to a branch, due to capital ratio requirements available at the European level.

He further stated that financial institutions, thanks to the EU principle of free movement, may serve their clients cross-border either by setting up a branch or a subsidiary in the host country or by providing these financial services cross-border from their Luxembourg base.

Many banks went also through mergers and acquisitions. Banque Havilland, for example, acquired Banco Popolare Luxembourg as part of its strategy to expand its UHNWI client base in Europe. In December 2015, Julius Baer agreed to buy Commerzbank’s Luxembourg unit and create its EU private banking hub in Luxembourg. A more recent example is Swiss private bank UBS, which last January agreed to acquire the private banking business of Nordic financial services group Nordea.

Laures says the regulatory wave put a lot of pressure on banks, particularly smaller players. “Because the cost of running a bank has increased a lot, you need a quite profitable business and a very strong client base to get the commission income to pay your employees, the cost of regulation, the IT challenge, digitalisation and so forth,” he says.

“A lot of private banks went through an exercise of renewing or going through the existing clientele and asking themselves ‘Do we still want to continue working with those clients?’ and then got rid of a lot of customers who didn’t fit into the new business model.”

But the consolidation of the Luxembourg banking sector is not complete. “The impact on the structure of the private banking industry, its size and the number of banks in Luxembourg is ongoing,” says Heinrich. He expects the change in business models to continue. “The transformation of business models is now more or less behind us, but the changes in the structure of the sector, that is ahead of us.”

He notes that reporting requirements are the same for all banks, irrespective of their size, which is why the cost-income balance will continue to have an impact not only on balance sheets but also on employment. He predicts “a real competition” for the types of human resources banks need to monitor, report and check operations, including IT and finance experts.

When it comes to the capital ratio required in Luxembourg, the sector has also seen a series of changes that have led to further changes in supervision.

As a consequence, some institutions in Luxembourg have chosen to change their legal status from subsidiary to a branch, to optimise the use of capital available at group level.

This also has an impact from a supervision point of view, since the group’s home country regulator will take a number of responsibilities over from the CSSF.

“The CSSF is involved and aware, but the need is with another regulator,” says Hondequin.

He adds that banks now pay more attention to their operations and legal footprint. In Europe, for example, they don’t need to have a branch in each member state to have a cross-border business model. “You can still be active in a cross-border way by using the freedom of movement, freedom of capital and freedom to provide services in a cross-border fashion,” Hondequin says. He points out that many banks are choosing Luxembourg as their hub, referring to the increasing number of Chinese and other Asian banks and financial services setting up shop in the Grand Duchy. In this sense, Brexit is also bringing additional business.

At the University of Luxembourg, Julian Presber speaks of compressed margins for the banking sector and highlights digitalisation as a means of increasing automation and enhancing competitivity.

Before banks can take advantage of digitalisation, however, they must invest, which Presber sees as “the only way to re-establish margins” and “invest into a future model that is sustainable”. The cost of regulation “forces banks to invest in new forms of digitalisation”, he puts simply, arguing that, if banks fail to do so, they will be out of the market.

“With regulation, you need IT analysts, product analysts … you need business analysts and lawyers. You need people who understand the regulation and can translate that into an operating model and implement it.”

Stanislas Chambourdon, head of banking and insurance at KPMG Luxembourg, says banks have recruited numerous tax specialists to consolidate clients’ wealth and report to different tax administrations. “At some point, the client database was changing, the offering was changing,” he says. “They were forced to change as well because it was a question of surviving.” He adds that some private banks resisted the change for a long time, while some relationship managers decided to leave the industry, move to another bank more in line with their selling culture or set up a professional financial services (PFS) business.

For custody business, Luxembourgish banks require a great deal of volume to survive, leading some players to drop their custody activities altogether. There is an expectation within the industry that the number of banks is set to fall. “We went from 220 banks 10 years ago to 153,” Laures says. “There is going to be further consolidation in the years to come.”

The financial crisis brought change not only to regulated financial services but also national regulatory authorities across the EU. The Banking Union, as Georges Heinrich says, “brings an additional layer of supervision that is exercised by Frankfurt” and which makes “the whole process a bit less reactive”, resulting in a longer decision-taking process.

While the CSSF is Luxembourg’s national regulator for locally based financial institutions, the European Central Bank (ECB) must also be involved in policies concerning the prudential supervision of credit institutions, as part of the single supervisory mechanism. In some cases, the ECB must be involved even in more simple decisions, such as appointing a board member, for example. The Banking Union is a more “streamlined process” and could even be seen as a “straitjacket” that provides “less room for national discretion”.

While decision-making used to be “very quick” – with the CSSF having a reputation for being “very approachable” and “very accessible” for banks already doing business in the country, or intending to set up operations in Luxembourg – shot-calling now takes up more time.

With the creation of the Single Supervisory Mechanism (SSM), as part of the ECB, Heinrich says “banking supervision has inevitably become burdensome, more procedural, while reaction times are longer”.

The decision-making process now entails additional control levels that exceed national jurisdiction, embracing a EU-wide approach. “This is inevitable, as creating the SSM from scratch is a huge task,” Heinrich says, adding that, to gain credibility in the markets, “supervisory mistakes must be avoided at all cost”.

In the early phase, “it’s practically impossible to apply proportionality, so all banks, large or small, are faced with the same requirements, including on reporting.” This process changes the way the CSSF, as a national regulator, “fulfils its mission”. As Heinrich says, “the regulator [is] moving from having the ultimate decision-making power for financial institutions in Luxembourg and being solely accountable for their decisions towards the public and the financial sector to having to share those powers for a large number of financial institutions with the ECB”.

For this reason, national financial regulators, including the CSSF, “have generally become more risk averse”, preferring to “err on the side of caution”.

For Presber, banks’ focus on digitalisation has been the single biggest change after regulation over the past five years and has taken greater visibility over the last decade. “In some way, it’s a tide that forces everybody to move, and, if you don’t move, you are going to be taken with the tide,” he says.

For all banks – retail, private banking or institutional – connecting with customers has taken on greater importance. Banks are now using digitalisation to provide data, speed and ease of access.

However, Presber warns that digitalisation affects banks in different ways, depending on the type of business they offer, their clients, the culture of their head office and the focus they place on technology. “While institutional clients will want sophisticated reports, retail clients want speed of access, and the HNWI will want something in between reports and analysis and high and fast access.”

Examples of banks’ use of digitalisation is the redesign of web banking services and the adoption of mobile phones and other digital devices used by relationship managers to keep in touch with clients. At KPMG Chambourdon says: “Compared with five years ago, on the qualitative side, on website, mobile banking – banks have made significant improvement and have invested a lot.”

He points out that banks have different approaches when it comes to technologies.

“Some will create a separate unit to look at these technologies, perhaps in the context of specific business lines,” he says. “Other banks will create a start-up, while some large banks in Luxembourg have invested in start-ups around specific technologies.” In some cases, banks are also joining forces to create shared solutions, with financial institutions now on a recruitment spree to attract the best IT talent.

Presber highlights ongoing R&D initiatives by Luxembourg banks in blockchain. “There are discussions in Luxembourg on applications of distributed ledger technologies, cryptocurrencies and many new technology initiatives and how they affect the country,” he says. At the same time, he warns that many jobs in administration have been automated, referring to an “ongoing trend that will continue”. “The labour market requires high added-value knowledge. It’s the knowledge economy that we are moving towards and are already in.”

Besides banks’ efforts to understand and incorporate digitalisation into their core business activities, they are facing a threat from IT companies with “potential access to simple internet mechanisms to the end client”, Presber says.

“That’s why it’s important for banks to adapt and become agile and develop their own path towards digitalised solutions. In terms of the connection with customers, that’s where the difference is today.”

KPMG’s Chambourdon, however, points out that some banking players do not see fintech as competition. “They are more a partner and more of an enabler to increase the productivity and efficiency of banks,” he argues.

He adds that more and more banks will now be focusing on the core business “Most banks are trying to do everything, to cover the front office, back and middle. We will see more banks focusing on the front, others on the back – and maybe the middle will be outsourced or be more technology driven … and maybe with less business.”

When looking back on the last 10 years in the local banking sector, the term ‘Luxembourg brand’ comes up often. For Presber, Luxembourg’s strength continues to be its cross-border expertise, as well as its ability to bring together multiple disciplines – from IT, finance, risk management and compliance – to create solutions for a much larger market than its domestic one.

For Hondequin, cross-border business is “truly part of Luxembourg’s banking DNA”. He says its banks don’t necessarily compete directly with larger local ones in other EU countries since they serve different needs. “Whilst foreign banks will best serve their resident clients for most of their banking needs, private banks in Luxembourg offer a cross-border expertise better suited to serve sophisticated clients with an international and complex asset structure,” he says.

He adds: Luxembourg’s financial sector provides asset management and asset structuring solutions “more in a partnership fashion rather than competing head on”.

Another advantage, according to Presber, is that the local financial sector is well-regulated. “The bar is held high”, which keeps the financial centre “at a good and strong level”. Luxembourg has achieved a “complexity at scale”. “It’s one thing to be able to solve complex problems and another to be able to have simple processing capabilities that are available en masse,” Presber says.

Heinrich agrees the Grand Duchy has coped well so far but warns that not all challenges have passed. “The reason Luxembourg has been so resilient, especially the last few years, has a lot to do with everything else that has been going on elsewhere … there is still a lot of turbulence in the financial sector, a lot of political turbulences throughout Europe, a lot of uncertainty that has persisted.”

He also suggests the effects of some recent changes in Luxembourg have yet to mature. “Let’s see what [Luxembourg] looks like 5-10 years from now. The effects of the changes implemented these last 10 years, they do not all materialise immediately. One probably still has to wait another five or even 10 years to assess their full impact.”

Heinrich says political and economic stability make Luxembourg attractive for investors, even within the European Union. “The reason many people still prefer to hold some of their savings in a bank in Luxembourg or invest via an investment undertaking in Luxembourg is due to concerns about economic and political stability and issues in their respective countries,” he says.

Trevisan adds that Luxembourg offers a very secure legal environment, where the rule of law is respected. He characterises Luxembourg as a “safe harbour” for wealthy individuals who seek to diversify their wealth in a way that, for stability reasons, they can’t always achieve in their home countries. “Because you want to diversify, you want to lower the political risk, you need to have another place to do business, and Luxembourg seems to be the right alternative, the right balance, because it’s in the EU and is a solid country, with AAA standing,” he adds.

Heinrich notes that Luxembourg also benefits from the economies of agglomeration because “we have a large population of banks, investment funds, insurers and other financial services providers. They have been in Luxembourg for some time – they know how to do business in Luxembourg.” He says just having the presence of a large population often attracts new actors, adding that, while it has perhaps become more complicated to do business in Luxembourg, “it hasn’t become easier elsewhere”.

Laures highlights Luxembourg’s track-record and says the country has developed a “critical mass of people” who have the right knowledge. “You have the toolbox,” he says. “Some people call it the Luxembourg toolbox of instruments you can use, in terms of entities you can use, the type of funds you can use. All this together creates this fantastic ecosystem.”

For Heinrich, the general environment in Luxembourg is still supportive of the banking sector because people are aware of the important role it plays within the economy. “Even though there is talk about diversification, there is no other industry in sight that would be able to replace the financial sector in terms output or employment, at least not in the next 10-15 years,” he says.

Heinrich refers to a “collective understanding” in Luxembourg in terms of “dealing proactively and constructively” with the challenges of the financial sector, but he wonders whether this will continue to be the case in the future.

“Will Luxembourg still have the degree of freedom to take certain decisions at the national level or not?” he asks, referring to “a lot of nervousness” about recent proposals put forward by various European supervisory agencies, such as ESMA, on increasing the powers of supranational bodies within the EU.

“It’s a gradual erosion of sovereignty of decisions being taken elsewhere,” he says, adding that “having decisions taken elsewhere is not necessarily a bad thing, but it generally takes a little bit longer to get the decisions, and you have less impact on the process”.

To the extent the regulatory framework is placed on a level playing field, Heinrich believes it is important for Luxembourg to remain competitive and attractive in all other dimensions and concentrate its efforts on providing an efficient business “infrastructure”. While Luxembourg has a good infrastructure in place, for him, it must remain interconnected with the rest of Europe and the world.

Heinrich warns of a “cost explosion” in banking related to regulation and the move towards the implementation of the single supervisory mechanism. ‘’The regulatory changes will be a trigger to bring some of the profitability issues to the fore,” he says. “My expectation is that there will be significant consolidation in the banking sector.”

According to Presber, “one cloud on the horizon” relates to recent signals coming from European authorities regarding financial services regulation. He believes the European single market is all about specialisation in services and trade.

For him, “that’s the very essence of Europe” and the same principles have to apply to financial services. He asks: “If we are going back to purely national models where substance is national, where are we headed?” This is a potential threat to Luxembourg, he warns, because it would never survive by only servicing Luxembourg the domestic market.

Looking back over the last decade, Chambourdon notes that some in the industry were afraid the banking sector would disappear and a high number of clients lost. Yet “Luxembourg has been able to respond and change, to adapt to this new environment”. He adds: “Luxembourg is an ecosystem, where the speed of response is quite quick. We have always been used to adapting ourselves to the new environment. The banking industry was completely different 10 years ago than now. It has certainly changed. The number of employees is going up and up in this country.”

Laures adds: “At the end of the day, it’s a success story, a successful transformation. The biggest challenges are probably behind us, but there are others that will come. We have further regulation that is going to come, we have pressure on margins, we have digitalisation, we have fintech – there will be challenges. But I’m not worried.”

ABBL’s Hondequin also recalls that many observers said Luxembourg’s financial centre and in particular its private banking activities were “doomed to fail and disappear” in light of the move towards increased transparency and automatic exchange of information.

“Luxembourg has proven those “doom-saying” observers wrong. It would appear they underestimated the Luxembourg financial centre’s capacity to adapt to change, however dramatic these changes may have seemed. That’s key to understanding the future and what is going to happen with Luxembourg considering the changes that occur now. Banks will continue to adapt, knowing that agility and innovation is the key for their success as well as the success of the financial centre in the decades to come.”