10-year retrospective on the financial sector in Luxembourg

In its new whitepaper, Deloitte zooms in on the financial sector in Luxembourg, its sub-sectors, and their performance over the last 10 years, and tops it off with 11 clear and pragmatic proposals for the decade to come.

The year 2017 marks the 10-year anniversary of the beginning of the financial crisis, and most global economies are back on track. Deloitte Luxembourg recently released a new report, which analyzes the different industries that make up the financial sector in Luxembourg and looks at the profit evolution per sector over the last ten years. The report analyzes facts and figures from different sources, illustrates Luxembourg’s main strengths, and looks at the financial sector’s role in the wider Luxembourg economy.

10 times faster than its peers

Over the last decade, the Luxembourg financial sector grew 10 times faster than its European peers in terms of gross value added, thanks to a compound average growth rate of nearly 4 percent per year. The Luxembourg financial sector remains a key pillar of the overall Luxembourg economy, and contributed 27 percent of the total gross value added in Luxembourg in this period.

Net assets in Luxembourg investment funds have now reached €3.9 trillion, of which €0.6 trillion represents regulated alternative assets.

“We believe Luxembourg should continue to build on its financial infrastructure and opt for a business model whereby Luxembourg acts as a center of excellence serving the rest of Europe. The backbone of this process would be risk management, KYC/AML and compliance. We also believe Luxembourg has the potential to become a global center for Private Equity,” explains Benjamin Collette, Partner and Financial Services Industry Consulting Leader at Deloitte Luxembourg.

In terms of profit, the report suggests a positive trend in the fund industry and the insurance sector, while other sectors have seen a decrease in their profits over the last decade. As a result of the general pressure on fees, financial players have made their cost structures more efficient. Costs have decreased, but nevertheless, the report indicates that net profit margins have seen a drop from 30 percent to 25 percent over the last 10 years. 

The changing work landscape

In terms of jobs, the financial sector has seen 7,500 additional job creations in Luxembourg since 2007, which is equivalent to 9 percent of total Luxembourg employment growth in the period.

“There is a discrepancy between the contribution of the financial sector in terms of gross value creation and the number of jobs created. This is in part due to automation and digitalization; financial players have managed to eliminate low added-value jobs to increase their efficiency, and created new positions in other fields, such as compliance functions,” explains Benjamin Collette.

Quest for talents

Benjamin Collette is also Deloitte Luxembourg’s Talent Leader and stresses the importance of investing in talent.

“We note a significant need for more tech profiles and professionals specializing in alternative investments. There is also a shortage of profiles specializing in KYC/AML, risk and compliance. For years, Luxembourg financial players have been dipping into the talent pools in neighboring countries and we have reached a point where this approach is no longer viable. Employers will need to start training people to cover their needs.”

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