Winning Brexit business: Luxembourg’s softly-softly approach

Pierre Gramegna at a recent event organised by the British Chamber of Commerce in Luxembourg.

Stephen Evans on Luxembourg’s understated approach to selling itself.

Both the UK and the EU 27 have been keen to foster a calm atmosphere as the London government triggers the EU departure process. This has been Luxembourg’s way since the beginning, and letting facts speak for themselves appears to be a winning strategy. In the days after the June 2016 leave vote, Pierre Gramegna, Luxembourg’s finance minister, told Reuters: “Luxembourg as a financial centre and London are partners, very complementary, and we want to continue that relationship.” Unlike the more hard-sell approach of some other EU governments, this country has sought to highlight its skills as an efficient, low-key problem solver.

This attitude continues even after the European Central Bank (ECB) confirmed it would be open to a fast-track regulatory approach for banks leaving the UK. Given that banks based in Britain already conform to EU regulations, the powers that be reason that there would be no need for an initial vetting process.

“There will be a transitional period in which new euro-area entities might use internal models that have not yet been approved by the ECB,” says ECB board member Sabine Lautenschlaeger. She says this approach would help avoid competition over regulatory standards between member states. “The transitional period will cease as soon as we have approved or rejected the bank’s model application.”

The Luxembourg authorities, however, are less than keen to highlight this approach. “There is no initial fast-track for banks moving to Luxembourg,” Nicolas Mackel of the Luxembourg for Finance trade-promotion body tells the Wort. “(But) if the ECB has the intention to make future relocations as smooth as possible, then this could be positive and in the interest of all.”

This low-key stance appears to be working. Speaking at last week’s ALFI European Asset Management conference, Gramegna said: “In the reorganisation after Brexit, we have had some success, and there is more to come.” The fund manager M&G Investments already announced its intention of establishing a Luxembourg base, with leading fund manager Blackstone rumoured to follow. American insurer AIG is also intending to move.

Privately, officials at the Luxembourg regulator, the CSSF, have spoken of the potential for as many as 25 UK firms opening an office in the Grand Duchy. It is unlikely this would lead to a major influx of activity, with each office probably needing no more than a few dozen staff. CSSF director general Claude Marx has confirmed it will be flexible regarding the outsourcing of activity back to the UK. However, this would be on the condition that sufficient systems and people are in place here. Is it a coincidence the government has recently moved to remove certain banking-secrecy-related restrictions regarding cross-border IT outsourcing?

Recent noises coming from the London government suggest it will seek a relatively long-term transitional arrangement as the UK works to complete its exit gradually. This would imply continued membership of the EU single market beyond the 29 May 2019 exit date. It remains to be seen how many will seek to establish a toe-hold in the eurozone prior to this apparent deadline.