Claude Marx, Director-General of Luxembourg financial regulator CSSF, says that apart from money-laundering requirements, most financial regulation has now reached the stage of evolution following the global revolution in oversight prompted by the financial crisis a decade ago.

 

What are the most important new pieces of regulation to be implemented over the next two years?

 

Since the financial crisis of 2007-08 we have seen big blocks of regulation put into place, and we are now entering a phase of ongoing review of the existing rules. These rules are complicated and complex enough, so adding a further layer of regulation, control and supervision would not necessarily be productive. Some legislation is still being worked on, such as the CRD V and CRR II measures on capital requirements, for which drafting is now almost complete. The completion of Basel III will likely occur next year. On the banking side, the review of internal models is ongoing, while for funds a review of the efficiency of distribution is underway, and the PRIIPs KID will be extended to UCITS at the end of 2021. In the coming years, anti-money laundering rules will remain a focus point and we are likely to see further evolution there.

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“The Luxembourg ecosystem has proved to be highly efficient, with the various players engaging with each other -whilst remaining in their respective roles.”

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How does the CSSF balance compliance with EU requirements with maintaining Luxembourg’s competitiveness?

 

For banking, the 19 Eurozone member countries are fully integrated under the banking supervision function of the European Central Bank. The rules are the same for all countries, from authorisation to control, supervision and capital transactions. The situation is slightly different for financial markets and funds because there is neither a European regulator nor a fully integrated regulatory system. The European Commission has drafted proposals that envisage the three European supervisory authorities – EIOPA for insurance, ESMA for financial markets and EBA for banking – becoming single European regulators. However, most EU member states have reservation about such a fully integrated system. Against this backdrop, the CSSF has two priorities. The first is to be rigorous. Luxembourg is not always popular with other member states, so we need to be particularly mindful of how we apply rules and regulation. We are viewed as a serious and conscientious regulator, and this played in favour of the grand duchy when large UK, US and Asian institutions visited us to find a new home post-Brexit. The second priority is to remain nimble and fast in decision-making when necessary. The Luxembourg ecosystem has proved to be highly efficient, with the various players engaging with each another – whilst remaining in their respective roles; the government, Luxembourg for Finance and the regulators have regular contact with the industry and are easily accessible. If we move towards EU supervisory convergence, which we fully support, we will have to retain this efficiency.

 

How do you envision Luxembourg’s financial industry a decade from now?

 

To face the challenges of digitalisation, some institutions have established research subsidiaries or incubators. Other have drawn up a clear strategy and invested massively in research. They will be better placed to survive in the future. We are therefore carefully analysing the business plans of the institutions we supervise as failures linked to digitalisation could impact other areas of activity and the broader financial ecosystem. Blockchain will permeate back office and fund transfer agency activities, and robo-advisers will have a real impact. ICOs and tokenisation are already here, but many more technological developments are coming our way. Visiting the LHoFT is a great way to take stock of what the future holds.