Luxembourg lost an important trading partner following Brexit, but its now evident that the Grand Duchy also benefited by absorbing financial institutions relocation out of London. Henri Wagner, managing partner of Allen & Overy, a top law firm in Luxembourg, tells us how he believes Luxembourg will only continue to increase its allure to top financiers, especially in the area of fintech.
How do you interpret the impact of Brexit on Luxembourg?
Brexit is a lose-lose situation. It is bad for Europe and it is bad for the UK, but we have to live with it. With the UK leaving the European Union, Luxembourg is losing a valuable negotiation partner in Brussels. Before Brexit, we had a strong ally in the financial services space, as we were generally thinking along the same lines. UK representatives were technically very skilled, acted commercially astute by and had always a savvy approach. That is something that will go away with Brexit and we will have to deal with other EU Member States that may not have the same interests as Luxembourg in this space. When it comes to daily business, it is clear that we have benefited so far in a number of areas, especially in the insurance space, the investment management space, the credit institutions space and the alternative asset management space, where we clearly have seen a strong trend in favour of Luxembourg. Brexit has clearly been quite positive for Luxembourg. Now we need to stabilise the situation and deliver because it is key to maintain the right ecosystem to help these firms do business out of Luxembourg. As a fully integrated global law firm, with offices in 44 offices in 31 countries, we are among the largest law firms in the world, which enables us connect people, and restore an interest post-Brexit from, among others, US and Chinese clients currently established in London.
How is Allen & Overy contributing to the development of Luxembourg’s financial center?
The landscape in Luxembourg has changed more over the last ten years than in the hundred years before. Twenty years ago we never thought a foreign law firm would be interested to come to Luxembourg, but then in 1999 and 2000 the first wave of mergers between local law firms and international law firms started. We were part of it and were the first to merge with Allen & Overy. This demonstrated that major law firms were interested in Luxembourg and there was clearly a need for enhanced legal services at a more professional level. Subsequently, more and more foreign law firms were interested in Luxembourg.
What has been the impact of new regulations on Luxembourg’s competitiveness in the financial world?
Implementing this legislation will create a level playing field in Europe, which is positive. Yet there are always nuances where a small and agile jurisdiction like Luxembourg can differentiate itself from other countries. One example is the fact that there are direct inroads to key decision makers. In Luxembourg it is possible to have an appointment with a Minister or even the Prime Minister at short notice. Luxembourg’s circuits are shorter, creating direct contacts and direct decisions faster. Also we have a very competent regulator in the financial sector, the CSSF. Though the legal framework is the same, the quality of a regulator makes a difference for the clients. And predictability is important for clients; they need to know if they come to Luxembourg how long does it take. That is why Luxembourg plays out favourably.
How will the growing tie with China benefit Luxembourg’s financial industry going forward?
While Chinese banks are starting in the beginning with more corporate lending activity they are going more in the fintech industry and expanding their offer using Luxembourg as a European hub. It is also possible that a number of Chinese financial institutions will use Luxembourg as a hub for their e-payment services throughout, which is fantastic news because they have such a potential.
What are the strongest areas of collaboration between Luxembourg and the U.S.?
US asset managers are more and more interested in Luxembourg because it offers a fantastic platform for their European operations. After Brexit, Luxembourg can become the new gateway to the European market for US asset managers as it has a number of innovative investment structures, which they can use for their European operations. That space has room for development and this is one of the areas we concentrate ourselves for growth to come.
How can a small country like Luxembourg continue to make an impact in today’s fast-paced and globalized market?
Digitization is a space where Luxembourg can make an impact. It is a personal topic of our Prime Minister who takes interest in this and there is a real political intention behind it. The Luxembourg House of Financial Technology (“the LHOFT”) initiative is a clear example of the Government’s ambitions and intentions in terms of digitalisation. We happen to be one of the founding partners of the LHOFT and we have helped some clients and start-ups shape their business. Luxembourg is currently at a very important moment in its history where we need to make the right decisions and keep investing in the future.