Luxembourg for Finance and the Luxembourg House of Financial Technology (LHoFT) where VNX is hosted and member contributed to this blog post.
As traditional financial and technology hubs such as New York, San Francisco, London and Tokyo compete for first place in the digital financial revolution, new hotspots emerge owing to innovative financial infrastructure, forward-thinking regulators and a vibrant startup ecosystem. Few can boast a better combination of such advantages for entrepreneurship and fintech than Luxembourg.
One of the most compact states in the EU (2,586 square kilometres) and a population of just over 600,000, Luxembourg offers opportunities rarely seen outside of the traditional global financial capitals and often surpasses them in their quality.
Over the past 20 years Luxembourg has been actively attracting talent, fostering innovation and providing stability and openness to change to thousands of experienced professionals from across the globe who are hungry to launch their own financial technology startups. Outside of Luxembourg they were often deterred by the run-of-the-mill obstacle course that surviving in a major financial hub entails: fighting for financing, clashing with regulators on important issues and competing for talent.
Luxembourg has since entered the limelight for its ability to simplify the road toward success for countless entrepreneurs who have decided to establish their headquarters or a European satellite office there.
If as a successful chief executive of a well-established startup or an aspiring entrepreneur with a unique idea behind the next disruptive technology you are searching for a place to launch or expand your fintech business, look no further. Luxembourg could be just what you are looking for and here are some of the top reasons why coming here could be life-changing for you and your business.
Although London is traditionally referred to as the financial capital of Europe, other major European cities have thrown their names in the hat for a leading place in the industry. Leading up to Brexit, the competition has intensified with Luxembourg slowly but steadily winning this race.
Today Luxembourg is ranked in the Top 3 financial centers in the European Union. It is home to around 4,000 regulated investments funds with more than 4 trillion euros under management, more than 140 international banks, and nearly 300 insurance and re-insurance companies.
Luxembourg however is one of the few countries that recognizes that it’s not the incumbents of the financial world and not the regulators who will likely transform the current financial landscape. The view technology companies as an important component of the overall financial ecosystem that will often have a leading role in how we interact with finance. It encourages cross-pollination between traditional financial institutions and the rapidly developing financial technology startups.
Luxembourg financial industry associations ALFI (the Association of the Luxembourg Fund Industry), ABBL (the Luxembourg Bankers’ Association) and ACA (the Luxembourg Insurers’ association) have established fintech clusters and working groups for various fintech companies to exchange ideas and experience in transformative technologies.
Luxembourg for Finance holds a prominent place right in the center of Luxembourg’s ecosystem. Luxembourg for Finance is the country’s chief Agency for the Development and a public-private partnership between the Luxembourg Government and the Luxembourg Financial Industry Federation (PROFIL). Founded in 2008, it promotes the knowledge base and expertise of Luxembourg as a financial center across different channel. LFF is a place for organizations to gather around to discuss key financial initiatives and for journalists to reach out for relevant information. It is the biggest resource on what is happening in Luxembourg’s financial ecosystem and how it plays into the global trends of the financial world.
Unlike the busy entrepreneurial aura of London and Berlin, the startup and R&D ecosystem that Luxembourg has to offer is much more intimate. By virtue of its smaller size Luxembourg offers close proximity to the country’s key resources in one place and big decisions are made in small rooms where partnerships thrive.
Luxembourg provides a unique environment where collaboration between new startups and the established financial industry here in Luxembourg is strongly encouraged, and new fintech companies are actively supported.
Beyond the vibrant fintech ecosystem, what really makes the difference in Luxembourg is the shared enthusiasm coming from the fintech community, backed by genuine engagement and action from all the stakeholders of the financial services industry.
The Luxembourg House of Financial Technology (LHoFT), a dedicated hub for financial technology that was established in 2017 by the government of Luxembourg and some key industry players, has already earned a special place in the history of developing fintech startups. It brings together financial institutions, fintech innovators, research, academia and public officials, to help drive forward the development of products which meet specific industry needs. When fintech companies search for a tech-friendly base from which to explore the European Single Market, the LHoFT is there to help them settle in, grow and make the right connections. The LHoFT is much more than an incubator. It attracts and connects key European and global fintech hubs into a network that fosters cross-border collaboration and innovation through establishing projects, working groups and initiatives with multiple countries.
The LHoFT has an active board of directors that represents how people in Luxembourg come together to make things happen. The LHoFT’s Chairman is the Minister of Finance, Pierre Gramegna. The other directors include representatives from the Ministry of Economy and Ministry of State, the CEO for Luxembourg for Finance, Chairmen from the Chamber of Commerce and PROFIL, the representative body of the finance sector, as well as the CEOs and MDs of various Financial, Technology and Advisory firms. The access, the dynamism and the availability of the key decision makers in Luxembourg is unlike that of any business center. That is what makes Luxembourg such a singular place for fintech.
Luxembourg also has an array of public and private funding projects for different stages of their development, including the Luxembourg Future Fund, the Digital Tech Fund and the Luxembourg Business Angels network.
The University of Luxembourg, the world’s second most international university according to Times Higher Education has also been active in promoting different types of research and development projects and facilitating various public-private partnerships. In 2009 it founded the Interdisciplinary Centre for Security, Reliability and Trust (SnT) with nearly 300 staff working in applied security, software verification, and automation. The Centre collaborates on R&D projects with leading international players in the finance industry, including PayPal, Clearstream, BGL BNP Paribas and the Luxembourg Stock Exchange. Very recently it also collaborated with VNX Exchange to solve the many issues born out of digital asset transactions – cyber security.
Luxembourg has a very vibrant fintech ecosystem where not only startups but also well established fintech giants such as Paypal, Amazon and Rakuten have chosen Luxembourg as the headquarters for their European operations.
It is no wonder that these companies have come to Luxembourg. Among the five strongest fintech areas in Luxembourg are
Many are surprised to see RegTech or Payments on top five, but there’s an obvious reason for that. As the Eurozone’s leading financial hub, Luxembourg is a prime location for Regtech providers to innovate and tap into the needs of a sizeable financial market. According to recent studies, nearly 20 percent of a firm’s budget is spent on governance, risk and compliance to avoid fines from regulators. With increasingly complex and time-consuming compliance demands, financial institutions and wealth management companies cannot simply rely only on can human compliance officers.
In addition to offering large companies room for more growth and smaller fintech startup unique development opportunity, Luxembourg has created a big new focus on the blockchain. As an example, VNX Exchange uses distributed ledger technology to support its cutting-edge new marketplace for venture capital investments. As blockchain-based technologies move closer to mainstream adoption, Luxembourg wants to be on the forefront of its latest advancements.
Companies like VNX Exchange choose a very unique market problem to solve. As a digital asset marketplace for venture capital investments, VNX Exchange strives to foster innovation and entrepreneurship. The platform tokenizes VC funds’ startup portfolios and offers them for trading which unlocks much needed liquidity for VCs and gives institutional and retail investors to get a part of the next Uber or Airbnb.
To support countless innovative fintech projects, Luxembourg has adopted a friendly and encouraging stance in dealing with fintech startups. Unlike many countries in Europe, North America and Asia where regulation can often be excessively restrictive, Luxembourg approaches each new fintech project that seeks regulation with an open mind. Regulation in Luxembourg, in short, is a constructive dialogue between officials and fintech companies. The regulations process is stringent and entrepreneurs with a solid idea in fintech often equate their success with passing the regulatory test and securing necessary approvals.
Luxembourg’s financial services regulator – Commission de Surveillance du Secteur Financier, CSSF – offers an unparalleled combination of strict oversight with an openness to innovation when it values the risks and benefits associated with different ideas and technologies fintech startups are developing. Back in February 2014 the CSSF was the first European regulator to adopt a start clearly regulating virtual currencies. In line with its technology-neutral stance, the regulator chose not to regulate the underlying technology nor the cryptocurrency themselves, but rather the operators who offer financial services around cryptocurrencies according to this Luxembourg for Finance report.
In a hunt for engineering talent and expertise of leading financial professionals, many big tech companies flock to San Francisco, New York and London. But more companies, including such leaders and PayPal, Amazon and Rakuten, are discovering the benefits of taking root in Luxembourg.
Luxembourg is a true melting pot of Europe: close to half of its population are foreigners. Sitting in between Germany, France and Belgium, it sees professionals commuting from these countries to the Grand Duchy every day. Luxembourg attracts talent from across the world and you can easily hear people speak three or more languages in any local coffee shop.
Luxembourg also ranks 5th in the EU for its talent in the field of information and communications technology attracting some of the best and the brightest minds, making it a unique place for fintech companies who are looking for experienced professionals from all walks of life.
Luxembourg is a multicultural hub for highly skilled professionals from 170 countries. It is also a fortress of stability – both politically and economically – as one of only 12 AAA-rated countries worldwide (by all three credit rating agencies), and it also benefits from a low public debt to GDP ratio of 20%. This is what drives a lot of companies to Luxembourg.
Economic and political stability is what drives a lot of companies to Luxembourg.
But unlike some stable economies that focus mainly on domestic prosperity and many emerging technology hubs with scattered ambitions, Luxembourg focuses outwards, on broader European and global markets.
It is a perfect gateway to the European single market and the rest of the world. Some of the best world-renowned asset managers, banks, insurers and private equity firms have chosen Luxembourg as the European hub for their operations.
Major e-payment and e-commerce companies, such as Alipay, PayPal, Amazon, and Rakuten have chosen Luxembourg as their European hub. Global fintech pioneer Paypal has been operating out of Luxembourg since 2007 with a full banking license, allowing it to offer a broad range of services to its customers across the EU with a single license, as does Rakuten.
Whether you are technology giant or a budding startup, Luxembourg is the perfect place to launch your business locally or grow your pan-European and global ambitions.
Alex Panican, Head of Partnerships & Ecosystem at the LHoFT commented:
“For the last two years, Luxembourg has become a major player on the European fintech scene, attracting key players from all over the world and boosting innovation in an industry that was seen as conservative. Reasons for that fast-growing ecosystem are many, but the main ones are the sense of community, openness and understanding of the need to reinvent itself. The country’s small size gives it the flexibility to put in place the right policies to welcome innovative solutions. The best way to understand is to visit us at the LHoFT.”
Luxembourg is a place of infinite possibilities for international teams with great ideas. For us it means defining a new type of digital asset - tokenized venture capital funds' portfolios. Luxembourg is the heart of European fund industry with a vibrant Fintech ecosystem, which is why for us there could have been no better place to launch VNX.
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