Luxembourg's financial future: stability, tokenisation and the race for talent

Luxembourg, as a recognised international financial platform, faces many challenges. According to Gilles Roth, Minister of Finance, the country faces both internal and external challenges: digital transformation requires continuous investment in technology and human resources, geopolitical tensions increase regulatory fragmentation, and global markets are becoming increasingly volatile. Nevertheless, it is precisely the high degree of international integration and a solid, flexible legal framework that allows Luxembourg to remain resilient and even increase its competitiveness.

The Minister emphasises that in order to maintain the leading position, it is necessary not only to maintain the existing infrastructure, but also to work more actively on the quality of regulation, the speed of implementation of new regulations and the expansion of access to the European market. There are 118 international banks from 25 countries, dozens of management companies, insurers and fintechs registered in the country. All of them are part of an ecosystem where it is possible not only to conduct cross-border activities, but also to scale them, using Luxembourg as a logistical and legal hub.

Competition with Ireland has attracted particular attention in recent months. Some large companies have decided to transfer part of their funds there. However, Roth sees this as a normal element of market competition. Moreover, he points out that Luxembourg is actively compensating for these losses in other areas. For example, two-thirds of all new EU long-term investment funds (ELTIF) launched in recent months have originated in Luxembourg.

This dynamic is not only due to scale or convenience, but also to point fiscal incentives: the government has, for example, abolished the subscription tax on ETFs. Thanks to these steps, the country remains the world leader in cross-border fund management with €7,300bn of assets under management.

The rapid development of digital technologies also plays an important role. Luxembourg is one of the few countries in the EU that not only follows trends, but shapes the legal environment for them. The blockchain law came into force in December 2024 and the MiCA regulation was implemented as early as January 2025. This has allowed local infrastructure to be ready for the tokenisation of financial instruments. For example, Franklin Templeton launched a fully tokenised fund and the European Investment Bank used HSBC's Orion platform to offer digital bonds.

Luxembourg continues to strengthen its reputation as a reliable and stable financial centre thanks to fiscal discipline. The country ended 2024 with a surplus of 1 per cent of GDP, and public debt remains at 24.7 per cent - one of the lowest in the EU. This provides Luxembourg with a AAA credit rating and gives it the necessary flexibility to invest for the future.

At the pan-European level, Luxembourg actively supports the ideas of reducing the regulatory burden and attracting private capital into the economy. This is in line with the Finance Europe initiative aimed at creating a pan-European investment standard. Roth emphasises that without reducing administrative pressure and increasing the availability of investment, the EU will not be able to compete with the US and China.

Meanwhile, even within the country, not everything is cloudless. More and more entrepreneurs are complaining about difficulties in opening bank accounts. Roth recognises the problem and supports the ABBL and CSSF initiative to harmonise and clarify requirements. He also emphasises that with transparent standards, the interests of banks and customers can be aligned.

Another pressing issue is access to human capital. To compete for talent, Luxembourg is extending tax preferences. For example, a regime for highly qualified expats has recently been in place, offering a 50 per cent tax exemption on income up to €400,000. In addition, a new 10-point plan to support start-ups and scale-up companies introduces a favourable tax regime for stock options.

According to Gilles Roth, Luxembourg's financial sector will become more digital, global and diversified by 2035. One of the goals is to attract fund promoters, not just managers. To this end, a new taxation regime for bonuses linked to management performance could be introduced in 2025. Technology will also play an important role in this transformation: without ambitions in AI, blockchain and fintech, there will be no future.