Luxembourg: Resilience in turbulent times
2023 saw a continuation of the volatility that characterised the financial services operating environment globally since 2022. Central banks’ responses to soaring inflation were rapid and while interest rate increases have stabilised and signs show a likely decrease in inflation, risks remain elevated for financial firms. In response to a tightening macro environment, financial services firms have slowed global expansion, reduced costs, and consolidated operations.
Luxembourg was not immune to this market volatility, however given the strength and stability of the ecosystem, the country’s resilience during times of turbulence is clear. Employment figures for the financial services industry confirm this view, with consecutive growth of approximately 1.5% in 2022 and 2023, on the back of a 2.5% growth rate in the decade preceding this.
Key Figures
55 new entities were licensed by Luxembourg’s financial regulators, including 5 banks;
- Luxembourg regulated fund AuM grew by 5.1% over the course of the year, to just shy of €5.3tn;
- Luxembourg-domiciled ESG UCITS funds’ assets account for 55% of European ESG UCITS assets;
- 1,870 GSSS bonds were listed on the Luxembourg Green Exchange at the end of the year, a 17.2% increase, amounting to just under €1 trillion;
- Over 280 fintech firms operate out of Luxembourg, a 13% increase over the course of 2023.
The stability and expertise of Luxembourg’s financial services industry, which has become a key draw for many global firms and investors, proved to be essential in 2023. The country remains an attractive domicile for financial firms, with 55 new entities being licensed over the course of the year.
2023 saw five banks receive licenses, including Bank of America which became the eighth US bank to set up operations in Luxembourg, and BTG Pactual which is now the fifth Brazilian bank in the country. The year also saw four new investment firms receive licenses, namely Investre, CVC Capital Partners, Convera and Alumia. Convera also received a payments license while Alpha FX was licensed as an electronic money institution.
Alongside this, four new management companies, three new specialised PSFs, one support PSF, and two new virtual asset service providers set up operations in the country. Additionally, the Grand Duchy remains a key location for insurers, with 6 new insurers and reinsurers establishing operations here between H2 2022 and H2 2023. The alternatives sector continues to grow in Luxembourg, with three new alternative investment fund managers (AIFMs) and 25 light AIFMs licensed.
Luxembourg’s fintech ecosystem also continued to see interest from firms looking to set up and offer services to the European financial services market. In total, just over 280 fintech firms now operate out the Grand Duchy, up 13% y-o-y.
Commenting on 2023, Nicolas Mackel, CEO of Luxembourg for Finance, stated: “it has undoubtedly been a difficult year for financial services firms globally with uncertainty stemming from multiple sources. Nonetheless, Luxembourg’s stability, expertise and toolbox remain attractive for financial firms looking to do cross-border business in Europe and beyond.”
Asset management recovers post 2022
Luxembourg remains Europe’s leading cross-border fund hub, with more than 3,270 funds distributed across 80 countries and set up by 580 promoters. Assets under management in regulated funds increased incrementally over the course of the year, growing by 5.1% between December 2022 and December 2023, to reach €5.29 trillion.
Alternative funds remain a strong growth driver for Luxembourg’s financial sector with the number of assets in regulated private equity and venture capital vehicles increasing by 5.7% over the course of the year.
Leading in sustainable finance
The Grand Duchy remains the leading sustainable fund domicile globally as the ecosystem continues to grow and become further embedded, with funds domiciled in the country now accounting for 55% of assets managed by European ESG UCITS funds. ESG fund AuM represented approximately 67.3% of the Grand Duchy’s overall UCITS fund assets as of end of Q2 2023 according to study by the Luxembourg Sustainable Finance Initiative and PwC Luxembourg.
The Luxembourg Green Exchange remains the globe’s preeminent listing location for GSSS bonds, with the number of labelled bonds listed increasing by over 640% in the last five years, to reach above 1,870 at the end of 2023 which marks a 17.2% increase since the beginning of the year. Throughout the course of the year over 270 bonds were added to the list, amounting to a total of over €150bn. By the end of the year, the total volume of GSSS bonds listed on the LGX had reached just shy of €1 trillion.
Non-life and Reinsurance spur growth in insurance sector
Life insurance remains the leading premium driver in the country, with premiums amounting to €26 billion between H2 2022 and H2 2023, however both non-life and reinsurance saw stronger premium growth during that period, 15.5% and 7.1% respectively. Total premiums for that period therefore came to €56 billion. Employment in the sector also saw an uptick of 2.5% rising to above 14,130.
