The financial sector, cornerstone of the economy
Luxembourg has a successful and innovative financial centre. With more than 120 international banks from 25 countries and approximately €1,000 billion in assets, the financial centre plays a key role in the country's prosperity. The CEO of Luxembourg for Finance, Tom Theobald, tells us about the challenges the Luxembourg financial centre is dealing with today.
The financial sector is hugely important for the Luxembourg economy. It represents more than 60,000 jobs, making it one of the country's biggest employers, and it is a significant contributor to the country's wealth. More than 120 banks from 25 countries, as well as financial institutions and international insurance companies, are based in Luxembourg, where they manage approximately €1,000 billion of assets.
A member of the exclusive Triple A club
The huge sums of money administered by the banks in Luxembourg in connection with their financial activities are a clear indication of the health of the financial centre.
The stability of the sector is achieved by a low debt burden, tight control of government debt and a balanced policy approach, which have enabled Luxembourg to maintain its AAA rating, the gold standard from ratings agencies Moody’s, S&P Global, Fitch and Morningstar DBRS. The only other countries to belong to the exclusive club of Triple A holders alongside Luxembourg are Australia, Denmark, Germany, the Netherlands, Switzerland, Norway and Sweden.
UCITS (Undertakings for Collective Investment in Transferable Securities) are a type of investment fund. Luxembourg has a 32% market share in European UCITS funds, representing €13.8 billion in assets under management. (Source: LFF)
Hedge funds are alternative investment funds that aim for an absolute return, in other words a positive performance regardless of financial market volatility. To achieve this, hedge funds use various management strategies combining "long" positions (purchases) and "short" positions (short selling) so as to benefit from both rising and falling markets. (Source: BCL)
The eldorado of investment funds
Investment funds are the linchpin of the financial centre. The total value of the assets managed by investment funds in Luxembourg is more than €5,000 billion. This colossal volume of capital is an excellent indicator of the global importance of the country's financial centre. Luxembourg is the largest centre for investment funds in Europe and the second largest worldwide after the United States in terms of assets under management.
The Luxembourg financial centre is the preferred domicile for UCITS funds and alternative funds such as private equity, hedge funds, real estate and infrastructure. Many investment funds choose Luxembourg because of its favourable legislation, attractive tax framework and well-established regulatory environment.
Leader in green finance
Luxembourg's financial centre has never stopped innovating since its early days. It is constantly reinventing itself to adapt to economic and technological developments. Since 2007, it has begun to position itself as a key player in sustainable finance, with the listing of the first green bond by the European Investment Bank.
In 2016, the Luxembourg Stock Exchange launched the Luxembourg Green Exchange (LGX), the world's first dedicated platform for green securities and sustainable financial instruments. With more than 3,700 listed sustainable securities worth a total of €1,000 billion, the country is positioning itself as a world leader in this sector.
But the financial centre is also looking ahead and developing financial products in the field of Fintech, which is where the future of finance lies. With a favourable regulatory framework, Luxembourg is attracting innovative companies specialising in payments, blockchain and digital finance.
3 questions for Tom Theobald, CEO of Luxembourg for Finance
What makes the Luxembourg financial centre different from other financial centres in Europe or around the world?
For several decades, our financial centre has been notable for its cross-border expertise and the fact that we enable financial players to offer their products widely around the world. The Luxembourg investment fund industry, for example, which is second only to the United States at global level, distributes its products in more than 80 countries. And Luxembourg currently accounts for nearly two-thirds of the alternative funds in Europe.
Luxembourg has a highly diverse financial centre and has developed expertise in different parts of the value chain in the global financial industry. Whether for assets management, insurance, corporate banking, wealth management or capital markets, Luxembourg is a gateway to the European market, linking Europe to global capital.
Within Europe, Luxembourg also stands out for its multilingualism, which makes it attractive to operators from all over the world and enables it to serve a broad international client base. Finally, Luxembourg's economic, legal and political stability has made it one of the few countries to keep hold of its Triple A rating. It offers an internationally-oriented regulatory framework with a high degree of legal certainty and compliance with all European and international regulations and standards.
"Luxembourg currently accounts for nearly two-thirds of the alternative funds in Europe."
Tom Theobald, CEO of Luxembourg for Finance
What are the main challenges facing the Luxembourg financial centre today?
Like all financial centres in Europe, the Luxembourg financial centre is constantly looking for highly qualified talent to keep moving up the value chain, comply with new requirements in terms of international regulations and remain at the forefront of innovation in financial services. The recent measures adopted by the government (bonuses for new young employees, a new tax regime for impatriates and a more attractive profit-sharing bonus) should boost the recruitment of young talent from well beyond the Greater Region.
These new experts will also help to sustain the pace of innovation, especially the digital transition. The financial industry needs to make major investments to digitize its services and integrate new technologies (AI and blockchain) in its processes, while also giving itself the tools it needs to manage growing cybersecurity risks.
At the same time, we need to pull out all the stops to make the Luxembourg financial centre a key part of the future Savings and Investment Union, an EU project to improve capital flows within the European area.
How is the financial centre integrating emerging technologies like blockchain and artificial intelligence?
Luxembourg invested at a very early stage to provide itself with infrastructures that would underpin the digital transition, such as access to high-speed internet and the installation of powerful data centres. MeluXina-AI, a new supercomputer optimized for artificial intelligence, will soon be a new addition to this landscape.
The Commission de Surveillance du Secteur Financier (CSSF) was the first supervisory authority in Europe to take a clear position on crypto-assets back in 2014, and it published a first White Paper on the use of AI in the financial sector in 2018. Recently the CSSF has signed a strategic agreement on artificial intelligence with Clarence, the Luxembourg sovereign air-gapped cloud.
With the launch of the public-private sector initiative LhoFT in 2017, Luxembourg established a national Fintech hub that provides young tech startups with favourable conditions for growth, linking them with a financial sector that is on the lookout for innovative solutions.
In December 2024, the Luxembourg parliament adopted a fourth "Blockchain Act". Since 2019 and the adoption of a first act paving the way for activities related to digital assets, Luxembourg has developed one of the most advanced legal frameworks in Europe. It offers legal certainty and safety for companies wishing to hold, issue or trade in digital assets. The bank HSBC has taken advantage of this secure environment to launch its global tokenization platform Orion in Luxembourg. In autumn 2024, US asset manager Franklin Templeton also made the most of this legal framework to launch the first UCITS fund based on a public blockchain. And this is just the beginning.
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