Brexit : the effect on Private Banking in Luxembourg

Luxembourg financial activities, and Private Banking in particular, will surely benefit from the Brexit and there are many good reasons to that. This might be one of the smallest territories in the European Union but it is a well-known financial stronghold which has always been praised for its unadvertised financial practices. The Grand Duchy of Luxembourg is very attached to its international tactful skills acquired along centuries of European confrontations. Its unique geographical position, close to the center of gravity of Europe and to the British islands, is a solid tactical asset. This is not a surprise to learn that major Private Banking pure players are already announcing their decision to mitigate Brexit’s negative effects by developing their activities in Luxembourg.

A particular Private Banking place to go

As a late 2017 study states it, Private Banking in Luxembourg is facing significant upheaval. Despite a very favorable overall situation the Grand Duchy has been confronted to many complex issues. The financial crisis and a much tougher competition struck Luxembourg market when it was already assaulted by new European regulations. This second smallest country of the Union, right after Malta, has always been renowned for its strict bank secrecy rules and a very business-friendly administration. It has favorized European offshore Private Banking for a long time. With the end of bank secrecy and the rise of new and stricter European financial regulations the banking sector in Luxembourg is standing still. However, despite large withdrawals from Private Banking accounts Luxembourg financial market is growing again. Thanks to its political stability and a good footprint in the asset management sector nothing’s lost yet. The Assets Under Management rate of Luxembourg market, and especially the one of the Ultra High-Net-Worth Individual, is rising. A hard Brexit could really favorize this trend.

Major private bankers are already on the go

Luxembourg Private Banking market could really move on if its AUM only increases by 8% a year. Residing in the Grand Duchy is indeed a cost-efficient way to operate between UK and the Union without the need for huge investments and the displacement of numerous professionals. When AUM resources become large enough and third-party AIFMs become numerous enough it will be time to move biggest parts of UK infrastructures to Luxembourg. For the time being some of the biggest operators in the Private Banking sector have already made their move. Because Britain is expected to lose financial passporting rights, US bank Citi has “taken the decision to build a booking center in Luxembourg for its European resident UHNW clients, in the event of a hard Brexit.” This decision is motivated by the need for the bank to service its clients without any disruption. Moreover, it “will leverage Citi’s existing legal vehicle and presence in Luxembourg.” Needless to say, that it fits perfectly with the results of the aforementioned study. It could cause a real snowball effect that would drive up Luxembourg Private Banking activities that would in return attract more and more assets to be managed by professionals leaving the UK. In this context the Brexit, and certainly a hard Brexit, could largely benefit to Luxembourg Private Banking sector.

 

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