The history of the Luxembourg financial centre goes back to 1856, year of the creation of the Banque et Caisse d’Epargne de l’Etat (BCEE) and the Banque Internationale à Luxembourg (BIL). However, the evolution of Luxembourg into an international financial centre only began a century later, when American, German and Swiss banks began to develop business in the euromarket.
The activities of the financial centre spread progressively wider, first to private banking and asset management and later to investment funds. A series of niche activities were added over the course of the last twenty years, and today the Luxembourg financial centre is broadly diversified.
Legal and regulatory framework
As a member state of the European Union, the legal and regulatory framework is largely predefined by European directives. However, since the national market is very limited, the legislator has used the margin for manoeuvre left by these directives to create an environment which supports the setting up of tailor made products and services for an international clientele.
At the same time there is a strong culture of investor protection. Luxemburg has very strict laws in both the protection of the privacy of clients and professional secrecy of bankers and in the fight against money laundering and financing of terrorism. Two supervisory bodies — the Luxembourg Financial Sector Supervisory Commission (Commission de surveillance du secteur financier, CSSF) and the Insurance Commission (Commissariat aux assurances, CAA) — are responsible for the prudential supervision of the financial sector.
Private banking is a flagship activity of the financial centre. Services offered in this area vary from an advisory service, where the client takes his or her own investment decisions based on recommendations made by the relationship manager, to discretionary management, where it is the relationship manager who manages the assets of the client in line with that client’s risk profile and long term objectives.
Financial services to companies
Banks in the Luxembourg financial centre offer a wide range of financial services to large and medium sized companies. In addition to services linked to the launch, acquisition, transfer or sale of a company, they propose treasury management services (factoring, trade finance and insurance, market risk management) and financial engineering (financial structuring, asset and liability management, etc.). Furthermore, Luxembourg banks have confirmed expertise in company administration under different jurisdictions.
The Luxembourg investment fund industry, the pillar of the Luxembourg financial centre, is today by far the largest domicile in the world for collective investment in transferable securities (UCITS). Investment funds under Luxembourg law are distributed not only across the European Union, but are also very popular with private and institutional investors in Asia, Latin America and the Middle East.
The financial centre has attracted more than 250 reinsurance companies, above all captive reinsurance companies belonging to industrial, commercial and financial groups, making Luxembourg a European leader in this field.
Financial sector professionals
Financial actors benefit from the services of a wide range of financial sector professionals engaged in related or complementary activities to whom they can outsource a variety of administrative or technical tasks. Any individual or company exercising such an activity is subject to authorisation and supervision by the Luxembourg supervisory authority, the Commission de surveillance du secteur financier — CSSF.
(Source: Luxembourg for Finance)