Between a visit from Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration, and the second staging of the Sustainable Finance Forum, it’s a busy end to the month for the Luxembourg Minister of Finance. During an hour-long interview held at the ministry, Pierre Gramegna discussed a range of issues affecting the financial centre.
As part of a restructuring at the ministry, Isabelle Goubin's former deputy, Vincent Thurmes, will replace her as permanent secretary of the High Committee of the Financial Centre [HCPF]. Vincent heads up the “Financial services, financial stability and regulatory framework of the financial centre” team and has just been promoted to director.
The role of the HCPF is to define a strategy for the financial centre and, in its capacity as a consultative body, to discuss the implementation of a suitable regulatory framework. This public-private body is highly forward-looking with a view to formulating ways of making the financial centre more competitive.
Established jointly by the government and private financial sector operators in 2008, Luxembourg for Finance’s role is to give professionals, potential investors and foreign media a better understanding of how the financial sector works.
Lastly, the role of Tom Théobald – the new director for the development and promotion of the financial centre – is to provide insight, to be a first point of contact at the Ministry of Finance and to liaise between the ministry and Luxembourg for Finance to ensure that information flows as smoothly as possible.
Within the HCPF, for example, we have worked together to draw up a strategy for coping with the fallout of Brexit. We have also recently set up several working groups, each of which is tasked with proposing reforms aimed at making Luxembourg more competitive. Some are focused on more technical issues, while others are looking to develop green finance or fintech initiatives in order to consolidate Luxembourg’s position in these areas, but they are all working towards the same goal: anticipating the future requirements of clients and investors. The financial centre is what it is today because it has always been able to stay one step ahead.
The financial centre depends mainly on three pillars: private banking, insurance/reinsurance and investment funds. These are at the heart of our development strategy and we are putting them front-and-centre in our campaigns promoting the financial centre abroad.
In addition, fintechs are revolutionising the world of finance. Luxembourg has laid some really strong foundations to be a key player in this field, but we’re also paying close attention to the growth of green finance.
Away from all that, Brexit represents a huge challenge that will measure and confirm Luxembourg’s attractiveness as an international finance centre. Despite not taking any exceptional measures to lure financial operators caught up in the UK’s exit from the European Union, we have managed to attract nearly 60.
As befits its status as Europe’s premier centre for investment funds, Luxembourg has attracted 31 asset management companies. There are also at least a dozen insurance companies, private banks and fintech operators that have strengthened their activities in Luxembourg. This is proof that we are attractive in all three pillars and that we must continue to build on the work we have done so far.
It’s true that Luxembourg is at the heart of this market, but it’s still very early days. It will be a long process. Right now, we are already a leading player in green and sustainable finance, especially through the Luxembourg Stock Exchange, which listed the first ever green bond in 2007. The Luxembourg Green Exchange (LGX) is the first global listing platform dedicated exclusively to green bonds. It currently lists over half of such bonds worldwide. I am particularly thrilled that the World Bank and the International Monetary Fund (IMF) have decided to list all their green bonds in Luxembourg in future. This means Luxembourg is consolidating its status as the global leader in green bonds.
Together with the European Investment Bank (EIB), we have also set up the Luxembourg-EIB Climate Finance Platform, which aims to increase the leverage on private investments in climate action projects while mitigating their financial risks.
The government has adopted a strategy to consolidate Luxembourg’s position as a true centre for green finance. In 2018, for example, we established a legal framework for a new kind of long-term bond focused on renewable energy. We are the first country in the world to offer this innovative debt instrument, which will help to finance facilities that generate renewable energy.
We have also passed a framework law aimed at offering financial market participants greater transparency and legal safety with regard to the circulation of securities equipped with blockchain technology. As for the banks, they are primed to develop innovative, green financial products and services and to capitalise on any opportunities that present themselves in order to bring about genuine change.
According to the Global Green Finance Index, Luxembourg is the third-best country in the world in terms of green finance penetration. In some areas, we are ahead of the other European nations. One of these is the finance-labelling agency LuxFLAG. Set up in 2006, this independent non-profit agency awards investment funds a recognised label to certify their investment policy. It has played a pioneering role and we encourage it to continue in this way. It’s hugely important because the European Union is itself working on introducing green criteria for a European label. LuxFLAG needs to adapt to the new EU label criteria so it can stay ahead of its competitors.
Lastly, together with eight partners from the private sector, we launched the Climate Finance Accelerator in 2017 which offers technical support for investment fund managers who wish to invest in innovative climate action projects. This is an effective initiative that has worked extremely well over the last two years.
All this means that once the EU has established a framework for green investments, Luxembourg – as the continent's leading centre for investment funds – will have all the necessary tools to consolidate its market-leading position.
The views and opinions expressed herein are those of the interviewees and do not necessarily represent the views and opinions of KPMG Luxembourg, Société coopérative.