Luxembourg Visit to London – FinTech and Brexit – Opportunities rather than threats

Luxembourg is very well known as quite an unrivalled investment funds hub. However not many acknowledge what the Grand Duchy can effectively offer to other business domains, such as to High Tech intensive enterprises.

The recent working visit of Luxembourg Deputy Prime Minister and Minister of Economy Etienne Schneider and Minister for Finance Pierre Gramegna to London and to Bristol held on July 26 provides us with the opportunity to discuss about the solid Luxembourg commitment to support High Tech companies at their early stage of development, either in the FinTech sector or in other technology-related domains in their broadest sense (e.g. BioTech, …).

Indeed the main reason for this visit is the launch of the Luxembourg House of Financial Technology (LHoFT), a partnership between public and private sector for the innovation and the technological evolution of Luxembourg’s financial services domain. Their offering would entail start-up incubation and acceleration, together with the connection to a number of Luxembourg FinTech stakeholders (innovators, investors, financial institutions and research institutions).

In this sense, the Luxembourg delegation visited Level 39, a very successful London based start-ups accelerator, deemed as the Europe’s largest technology accelerator space for finance, cyber-security, retail and smart-city technology companies.

In this context the Deputy Prime Minister Schneider also travelled to Bristol so to sign a Memorandum of Understanding between the National Composit Center (NCC) and the Luxembourg Institute of Science and Technology (LIST) to establish a greater scientific cooperation.

The ultimate purpose of this visit is to confirm and strengthen the fruitful collaboration between Luxembourg and London within FinTech, but not only.

We talk about fruitful collaboration, as the United Kingdom represents the 6th Luxembourg commercial partner in the Eurozone, with a volume of commercial exchanges amounting to EUR 768.57 Mio, as at 2015.

Why is this visit meaningful now?

Luxembourg role in a Post-Brexit world

In view of a post-Brexit world, it makes a lot of sense for Luxembourg Government Representatives to confirm the role of the Grand Duchy as a valid alternative to London as Financial Hub and as solid partner to the UK.

As Mr Gramegna said, Brexit is definitely a “shock but not a crisis”. Once Article 50 of the Treaty on European Union would be effectively invoked, it won’t be the end of the world.
After an appropriate grandfathering period, new opportunities would open to the UK, to Luxembourg, and even more to London and Luxembourg together.

As a matter of fact, Luxembourg represents one of the “obvious” choices when it comes to decide where to establish a business European Hub after Brexit. London would have the opportunity to respect the democratic decision of their People and in the same time to continue offering the best business solutions, partnering with Luxembourg.

Luxembourg won’t come to London to “lure business away” from the UK, but to continue to do business with renewed common strategies.

And FinTech is a sound example.

Luxembourg and the FinTech EcoSystem

The tiny Country can provide exquisite ICT solutions for international businesses that have all the interest to establish their presence in the Grand Duchy so to benefit from the proximity to their clients and from highly-qualified personnel, both in finance and in technology.

Luxembourg is ranked 9th (out of 139 countries assessed worldwide) regarding Information and Communication Technologies for social and economic impact, 1st in terms of bandwidth and knowledge-intensive jobs, and 1st for ICT Laws’ efficiency and reliability (source: Global Information Technology Report from the World Economic Forum). Also the Grand Duchy hosts one of the most modern data centre parks in Europe, including 40% of all Tier 4 data centres in Europe.

It is notorious as Luxembourg has been gaining great traction for e-payment technologies, and tech impacting wealth management and insurance sectors (also leveraging from many years of experience in asset management servicing). Especially within e-payment services, it is relatively long time that big brands as Amazon, Alipay, Rakuten and Yapital have already established their solid presence in Luxembourg.

All in all, over 150 FinTech companies focusing on IT infrastructure, services, software and technology-based services have chosen Luxembourg as their European Hub.

Luxembourg very advanced IT infrastructure is the result of the governmental investment and strategic development. Luxembourg government is business friendly and open to innovation.

By way of example, they created ad-hoc governmental agencies (e.g. LuxInnovation), organized in specific sector’s clusters to support new businesses as from a technical and strategic point of view; as well as financially, via short and medium term loan arrangements.
By presenting an appropriate business plan, international start-ups with an establishment in Luxembourg can benefit from significant bridge loan financing with an unusual light administrative process.

Also the private sector plays its role: in 2012 PwC Luxembourg launched their PwC Accelerator on the initial purpose of connecting the Silicon Valley and the Grand Duchy; whereas Deloitte has recently set up a task force (the EMEA Financial Services Blockchain Lab) with a solid Luxembourg presence to increase traction for the Blockchain Tech.

As you see, there is a lot in the pipeline then.

If all the above does not seem enough, it is fair to mention the flexibility of the Luxembourg legal framework when it comes to enterprises.

The domestic Legislator has just introduced a new legal form (the Simplified Limited Liability Company – Sarl Simplifiee – via a law to enter into force as from FY 2017) that enables entrepreneurs to have an up and running legal entity established in no time (no notarial deed, and a minimum share capital of 1 euro), reducing costs and time-to-market to the minimum.

Moreover, flexible legal arrangements can be established so to ease cross-border inter-company financing and the design of a solid tax planning, 100% compliant with the international tax law, EU Directives and Regulations currently in force.

Conclusion

Luxembourg has proven a unique credibility in the Eurozone with regards to the investment fund industry for many years now, even partnering with all the major fund promoters based in the UK.

Given the significant momentum FinTech is currently having, the Grand Duchy can now prove to the UK and to the World the level of the ICT solutions they can provide to an everyday more demanding start-up ecosystem.

The Luxembourg business environment with their business friendliness, their flexible fund and corporate legal environment is a warrant for success.

Brexit is just the latest opportunity to make this jurisdiction even a more relevant player, with a 360 degrees business exposure and offering.

Article by Marco Vernia, Funds Partnership, London

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