September 25, 2017
By: Ross Thompson & Luca Ziprani
Why is Luxembourg a financial hub?
Luxembourg specialises in the cross-border fund administration business. Over 38% of all cross-border collateral has been pledged to the Eurosystem via Clearstream Banking, Bank Central du Luxembourg & Globe Settle.
The Association of the Luxembourg Fund Industry (ALFI) is an association who is the representative body of the Luxembourg investment fund community. Created in 1988, the Association today represents over 1,300 Luxembourg domiciled investment funds, asset management companies and a wide range of service providers such as depositary banks, fund administrators and transfer agents1
The Luxembourg Fund industry is the largest fund domicile in Europe and a worldwide leader in cross-border distribution of funds. Luxembourg-domiciled investment structures are distributed on a global basis in more than 70 countries with a particular focus on Europe, Asia, Latin America and the Middle East.
Back in 2010, Luxembourg’s central Bank, La Banque Centrale Du Luxembourg, and Clearstream launched LuxCSD, a new central securities depository service for Luxembourg and beyond.
What is a CSD?
CSD stands for “Central Securities Depository”. A CSD is an entity which provides a central point for depositing financial instruments i.e. securities. CSDs’ clients are typically financial institutions themselves e.g. investment banks, Insurance companies etc.
Although CSDs worldwide differ in their daily operations, according to the EU Regulation of 2014 the core functions performed by a CSD are:
1. Operates a securities settlement system (settlement service).
2. Records newly issued securities in a book-entry system (notary service).
3. Provides and maintains securities accounts at the top tier level (central maintenance service).
Clearstream is a key stakeholder in the securities services industry benefitting from consistently high credit ratings.
As an international central securities depository based in Luxembourg they provide post-trade infrastructure and securities services for the international market.
LuxCSD allows for settlement of securities transactions in central bank money reducing risk for financial market participants. Furthermore, it provides an issuing and central settlement and custody services for securities of all types.3
“LuxCSD is a CSD in the new mould. It will offer custodians and distributors across Europe excellent custody and added value services built on top of a highly efficient settlement process with access to a large range of counterparties. We believe that LuxCSD will form a core element of Luxembourg’s proposition for years to come”. – Jeffrey Tessler, CEO of Clearstream
Where will the European financial hub be in 5 years?
It’s still very hard to tell.
With an ever changing market due to recent political turmoil, there is no guarantee as to where the new “financial hot spot” will be.
However, the latest from Brussels and the UK government street suggests a potential partial “exodus” of the financial industry from London to the EU with the hottest locations being Frankfurt, Paris, Dublin & Luxembourg, with Luxembourg already being home to 60,000 financial jobs.
Tokio Marine recently announced it was applying for regulatory approval to set up operations in Luxembourg, making it the ninth insurer to choose the Grand Duchy.
Perhaps Luxembourg will not become the financial centre of the world given its limited infrastructure to support expansion, but it’s a pretty safe bet that it will play a key part in it.
With an established presence in Luxembourg, Skillfinder International has seen an opportunity to support the local market better. Existing and potential new customers often prefer suppliers to demonstrate compliance by operating from a local office and so in 2016 we opened SKILLFINDER S.A.R.L. in the Grand Duchy.
Whether you are a UK national or an EU citizen living in the UK, Skillfinder International can help find your next job & career move in the European financial hubs: Luxembourg , Frankfurt, London and further afield.
2. Official Journal of the European Union, regulation (eu) no 909/2014 of the european parliament and of the council, 23 July 2014 – http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:32014R0909