The BEAST team had the great honor of meeting with Pierre Gramegna, Minister of Finance, government of the Grand Duchy of Luxembourg, to discuss the state of finance in our country, the use of new technology, but also the impact of Brexit on the Luxemburgish finance sector. M. Gramegna notably highlights the incredible level of innovation of the companies located in Luxembourg, allowing competition and exchange but also the tight collaboration between traditional players and creative and disruptive startups, resulting in the development of a vibrant FinTech ecosystem. Thanks to its strategy towards innovation, Luxembourg is currently attracting digital players from all over the world, making the country more competitive than ever.
Through the years, the Grand Duchy of Luxembourg was able to evolve and innovate, moving from industry to banking and funds, and now delivering renowned and recognized ICT and Fintech services all over the world. How would you describe the country’s capacities to reinvent itself and seize opportunities?
As one of the smallest countries in Europe with an open economy, Luxembourg is constantly adapting to change by diversifying its industries. I would say that Luxembourg has innovation in its DNA.
The government is actively supporting innovation and diversification processes that are already on their way and is helping industries to seize new opportunities. A model that has proven successful in this regard, has been the establishment of public-private partnerships. It has helped Luxembourg for example to build the largest satellite operator, SES. Building on this success, Luxembourg is developing new expertise in the field of space mining and commercialization of space.
In finance, Luxembourg could build on its successes as a leading fund and banking industry, and on the other hand, on its world-class ICT and data center infrastructure. The financial center has managed to fully embrace digitalization over the last years.
With Fintech being one of my top priorities, I launched the Luxembourg House of Financial Technology – a PPP – to support and accelerate this movement. Furthermore, Luxembourg’s regulators, the CSSF and the CAA, are playing an important role in Luxembourg’s success in digitalization and innovative finance. The result is clear to see: today Luxembourg is recognized by its European peers, but also worldwide, as one of the leaders in Fintech.
Many Luxembourg delegations are traveling the world to meet Fintech experts, from the US to Asia, and sign partnerships to further develop collaboration between countries when it comes to innovative finance solutions and services. What can these countries bring to the table in order for Luxembourg to continue growing and become an international Fintech hub? On the other hand, what can Luxembourg bring to them?
At the current stage in the Fintech industry, collaboration between startups and traditional players, but also between different Fintech hubs, is key to success. To enhance Luxembourg’s connections in this regard, I have done about 30 financial missions all around the world, during the last 5 years. They have helped to build strategic alliances and promote Luxembourg as a Fintech hub. The LHoFT has also actively contributed to the expansion of the network and established numerous Memoranda of Understanding to connect Luxembourg’s Fintech center to the rest of the world.
As you mentioned, two regions are currently leading the way in Fintech: the US, with its Silicon Valley and China, where I will be on a mission in September. Luxembourg has managed to attract main actors from both regions.
As the prime gateway to the EU market, Luxembourg helps these companies to serve the whole European market. In return, their presence in Luxembourg helps to push innovation in the EU by bringing new ideas and talents. They help enriching the already highly competitive and innovative local Fintech ecosystem.
Since the vote in favor of Brexit, several finance and insurance companies have decided to set up their European headquarters in Luxembourg. According to you, why did these companies decide to join Luxembourg over other European leading financial cities?
What the Brexit has shown first and foremost, is that Luxembourg is one of the most competitive financial centers in the EU. By that I mean, unlike other European financial centers, Luxembourg did not actively try to attract companies, based in the UK, in the wake of the referendum. Due solely to the attractiveness of the financial center and its ecosystem, Luxembourg has managed to attract more financial players than other European financial centers. Luxembourg is the natural choice for companies that prepare for a hard Brexit. Furthermore, the fact that Luxembourg’s and the UK’s industries have been complementary for a long time, makes our financial center even more attractive.
Do you think that this trend will lead to other companies moving to Luxembourg and benefiting from its advantages?
For companies from outside the EU that want to operate inside the EU, Luxembourg is and has always been a natural choice. I think for example of Swiss banks and insurers. Let me also remind you that over the last 30 years, Luxembourg has been the first choice for Chinese banks in Europe.
Only in the last 5 years, 4 additional Chinese banks have chosen Luxembourg as their European HQ. Today, 7 Chinese banks have their European HQ here in Luxembourg. This reality has thus existed for many years, and in a way the Brexit has been an accelerator. I am thus very confident that companies will continue to join over the next years.
PSD2 is also changing the way banks and tech companies are collaborating, and aim at benefiting the end-user with smoother and easy-to-use secure solutions to process payments. How can Luxembourg be a leader/pioneer in this topic?
By establishing an innovation friendly regulatory framework, the EU is preparing the industry to adapt to change. The PSD2 gives a good idea of where the global industry is headed, and the effects will be felt across the globe. The regulation will force financial service providers to develop an open banking strategy. In this context, Fintech startups are enablers – and not disruptors. Once again, collaboration is key to success.
I welcome the LuxHub initiative, which has been launched recently by four major Luxembourg banks. This initiative will help the local industry to develop new innovative solutions and standards in the age of open banking. Today, the LHoFT hosts a critical mass of startups active in payments that will help prepare the industry for open banking. Hence, I’m very optimistic for the future development of the Luxembourg financial center.