Luxembourg a surprise winner in Brexit relocations

Without fanfare, Luxembourg has emerged as one of the big winners in the battle to attract post-Brexit relocations of financial hubs from the City of London.

David Sapsted

16 September 2020

According to a report in the Financial Times, Luxembourg's "understated" campaign to attract financial services has resulted in 72 companies opting to move to the Grand Duchy - equal to the number achieved by Ireland and more than twice as many as France, the Netherlands and Germany."While investment banks have gravitated towards the political and economic centres of Paris and Frankfurt, companies that make money from daily trading on global markets have largely turned to Amsterdam, a city with a rich history of trading," reported the FT."Luxembourg has built on its strengths in private banking, investing, insurance and corporate lending developed over the past half-century as it moved away from a predominantly industrial economy. Banks JPMorgan, UBS, Credit Suisse, Lloyds Banking and Citibank have plans to move some London operations to the Grand Duchy."The report pointed out that big asset managers turning to Luxembourg included M&G, Janus Henderson, Fidelity, Columbia Threadneedle and the asset management arm of UK insurer Prudential. Specialist insurers, for shipping or property, included FM Global, Tokio Marine, Liberty Specialty Markets and Hiscox. And there have been other "notable decisions", such as by CIBC Canada to use it as its base for its capital markets activity.According to the lobby group Luxembourg For Finance, the relocations have collectively created about 3,000 jobs in one of Europe's smallest nations.The reason for the moves, of course, is the fear that the UK will lose its "passporting" rights to serve EU customers once the Brexit transition period ends on December 31.

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But while other nations have offered tax breaks and other incentives to attract banks and related financial services in a bid to lure companies from London, Luxembourg did not.“Luxembourg decided we were not going to jump aboard that ship,” Gilles Walers, legal adviser for financial markets regulation at the Luxembourg Bankers’ Association, told the FT.“We have a very good geographic location, are easily reachable from London and a lot of companies already had a presence here. Luxembourg has been very good at positioning itself as a gateway to the single market.”Mr Walers added that, for all Luxembourg’s pride in attracting business from London, many local executives and politicians were disappointed that the UK was leaving the EU, because the City of London and Luxembourg have had a mutually beneficial relationship. “We had the UK as an ally in financial market strategy in the EU,” said Mr Walers.Links between the two centres included such activities as London supplying the connections that allowed companies to tap asset managers to raise capital, while Luxembourg marketed itself as a centre for fund servicing, ensuring the smooth running of some €4 trillion in investment funds."Funds domiciled in Luxembourg pay lower taxes on their funds under management than other European countries, which allows investors to share more of the payouts. When the UK was part of the single market, fund managers could run their back-office functions in Luxembourg and manage the portfolio in London. With the UK gone, relationships like those could be ruptured," commented the FT.