Why Offshore Banks choose Luxembourg

01 Mar
Yves Maas is Managing Director and CEO of Credit Suisse S.A. in Luxembourg. Mr Maas is the Chairman of the Luxembourg Bankers’ Association (ABBL) and a Board Member of the European Banking Federation (EFB). - Offshore Banks

Yves Maas, Chairman of the Luxembourg
Bankers’ Association (ABBL)

Yves Maas is Managing Director and CEO of Credit Suisse S.A. in Luxembourg. Mr Maas is the Chairman of the Luxembourg Bankers’ Association (ABBL) and a Board Member of the European Banking Federation.

As Chair of ABBL, the professional organisation representing the majority of banks and other financial intermediaries established in Luxembourg, he acts as the voice of the whole sector on various matters in both national and international organisations.

Between 2013 and 2014, 10 new banks were established in Luxembourg, both from the “Old Continent” as well as from non-EU countries. The Grand Duchy today counts 143 banks from 27 different countries. While certain doomsayers predicted that the introduction of the automatic exchange of information would spell the end of Luxembourg as a banking centre, reality has proven them wrong. There are several reasons why such a decline did not take place.

The five masted tall ship Royal Clipper - offshore banks

First of all, and contrary to popular believe, Luxembourg’s success in private banking is not built on banking secrecy, but on the quality of its services and the high level of cross-border expertise on offer. Moreover, the Luxembourg private banking industry was well prepared for the  introduction of automatic exchange of information. Over the past 4 years, assets under management have remained stable thanks to the inflow of new UNHWIS and internationally mobile clients. Tax transparency has been an opportunity for Luxembourg private banks and wealth managers to expand into new markets and attract new clients, some of whom may have previously shied away because of the stigma of banking secrecy. This new clientele requires expert wealth and succession planning services for their businesses and their family, more often than not on a multijurisdictional scale. This is what they find in Luxembourg.

An increasing number of international banks establish their Luxembourg entity as a wealth management competence centre for international clients. Luxembourg’s eurozone location and EU membership offer a high degree of complementarity, as well as a number of competitive advantages, vis-à-vis other major European private banking centres such as London or Switzerland. And Luxembourg’s AAA status and political, fiscal and financial stability is not only a key argument for banks themselves, but also for their clients and their investors.

Importantly, however, there is much more to Luxembourg as a banking centre than wealth management, even if the latter remains an important and dynamic pillar of activity. Indeed, the diversity of Luxembourg’s banking sector contributes significantly to its stability and attractiveness for international groups.

The five masted tall ship Royal Clipper of Luxembourg - offshore banks

The five masted tall ship Royal Clipper of Luxembourg

The vast majority of banks in Luxembourg have a universal banking license. While some banks have specialised in one particular activity, many make full use of their universal license to offer a broad range of services to private and corporate clients. More than half of the banks present on the financial centre play a central role in Luxembourg’s thriving fund industry. Leveraging on the country’s position as the world’s leading cross-border investment fund platform, banks in Luxembourg have specialised in global custody, fund administration and offer a full range of fund services from product creation, management companies services to custody.

Beyond the universal banking license, Luxembourg regulation also foresees a special license for banks issuing covered bonds. The Luxembourg  covered bond regime offers the highest levels of investor protection, a broad scope of eligible countries (all OECD countries are included) as well as the possibility to use movable assets such as ships or planes.

The five masted tall ship Royal Clipper of Luxembourg - offshore banksLuxembourg has become a key location for corporate finance services. Many banks in Luxembourg have specialised in organising and structuring syndicated loans to finance international, cross-border projects. Luxembourg’s expertise in the international credit business already dates back to the 1960s, when the country played a central role in the Euromarkets. Moreover, Luxembourg is generally regarded as having one of the world’s best laws on financial collateral due to full protection against insolvency risk as well as an efficient and safe enforcement process. Non-EU banks, in particular, are using Luxembourg as their hub to support the Euro liquidity needs of their corporate clients in the Eurozone. Having such a hub allows banks to provide loans in Euro to their corporate banks clients. For instance, Luxembourg is today home to the major Chinese banks who have set up their European headquarters in Luxembourg. Locating in the Grand Duchy enables them to leverage the EU passport in order to branch out and accompany their corporate clients throughout the single European market.

Many non-EU banks, including Swiss banks, also consolidate their cash pooling and euro treasury in Luxembourg. They can thus leverage their Luxembourg entity as an interface into the European Central Bank system.

The five masted tall ship Royal Clipper of Luxembourg - offshore banksFinally, banks in Luxembourg have access to the services of a comprehensive financial centre ecosystem that includes essential market infrastructures, such as the Luxembourg Stock Exchange and post-trade service providers such as Clearstream, family offices, insurance companies, lawyers, tax experts, consultants, auditors, accountants as well as a unique regulatory framework that allows banks to outsource IT and operational processes to service providers that are fully regulated by the financial sector supervisor.

Whether in private banking, fund services or corporate finance, Luxembourg is the ideal location for banks to set up a pan-European hub to offer financial products and services on a cross-border basis.

By Yves Maas
Source: European Platform Dossier

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