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A view from the inside FINANCE INTERVIEW | Luc Frieden, Minister of Finance








40th anniversary

Rod's view

Financial literacy


: When IT goes finance-P16




For the population‘s sake

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The birth of a Nation Can a financial centre exist without a dedicated financial press? Certainly yes. 


29, rue Notre-Dame L-2240 Luxembourg Grand-Duché de Luxembourg T. +352 26 10 86 26 F. +352 26 10 86 27 E. Internet: Eric Busch Publisher Marc Auxenfants Editor in Chief M. +352 691 99 78 61 Émilie Mounier Sales Manager M. +352 691 99 11 56 Isabelle Libouton Project Manager M. +352 661 50 36 26 Alexandre Trân Project Manager M. +352 661 16 44 70 Photography Sébastien Héraud Photos Finance Nation

Luxembourg’s financial sector is not just the largest contributor to the Luxembourg economy. It is also - according to Luxembourg for Finance, the agency for the development of the financial sector -, the second largest investment fund centre in the world after the United States, the premier captive reinsurance market in the European Union and the premier private banking centre in the Eurozone. In other words: the financial industry deserves a better coverage of its activities than the one provided by the local generalist and business press or by the international financial media. We regard Finance from its technical aspects and from the human perspective. But the financial centre must not be reduced to just three pillars only: Fund management, Private banking and Insurance. Here too, other industries and actors deserve a better coverage of their businesses: from lawyer and auditors practices, including accountancy, trust, advisory, consultancy and PFS companies to higher education and research institutions. More than pretending to fill a gap, we intend to cover those sectors as well, as they also actively contribute to the existence and evolution of our financial centre. FinanceNation addresses the financial community and those in Luxembourg and beyond who regard finance matters as a passion and as a profession. The media is therefore more than a bimonthly magazine: it is also supported by a website ( and social network services (such as Twitter, Linked’in, Facebook and Viadeo).

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In these post-crisis times, global regulatory (UCITS IV, Basel II & III, AIFMD…) and tax (FATCA…) issues occupy the field. Some of these schemes are currently in their implementation phase in Luxembourg (CRD II, SCA). Not to forget some “produits du terroir” (or local specialties) such as Holding 29, which is due to disappear by the end of the year. Since last summer, public and executive bodies have been on the front line of the news, as opposed to companies, who have been rather discrete.

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Therefore, our cover choice to celebrate the birth of FinanceNation fell naturally on Luc Frieden: who else could better illustrate the recent evolution and future challenges of the financial centre?

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Have a pleasant read Marc Auxenfants

Finnova – crossing borders

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Global News

Finance interview

IT Banker When IT goes finance


CRD II C'est déjà demain


Fatca It's getting serious for the financial sector


UCITS IV Risk management in a two-view


Investment 5 indexes to keep art in good hands


Luc Frieden A view from the inside


Global etc

34 Laurent Vanderweyen (JP Morgan Bank Luxembourg) Serving the funds


Companies etc


Industries... Jeff Tessler, Clearstream 40th Anniversary


Islamic funds Too sluggish to rock the casbah?


funds etc

... Industries

Nation News

Simone Delcourt, (CSSF) A supervisor's overview

André Prüm ( Financial

Victor Rod (Commissariat aux Assurances) Challenge covering

The end of the boutique?

for low-income persons

On city management

60 62 63

H29 redeems


Pascal Espen (Abax Consulting-PKF)


Private banking etc


Gives his SCA tune

Bob Kneip (Kneip) Talks about finance communication


Paul Chambers (ATOZ) Une mise au

Jean-Luc Fisch (Allen & Overy)


74 Paul Helminger (Luxembourg City)


Degroof N'a pas peur des mastodontes


Law etc

Scorpio Partnership


Nation etc

Insurance etc

Michel Maquil, (Stock Exchange)

education vs Financial sector

Craig Churchill (ILO) On insurance

46 Listing the challenges


66 68

point sur l'optimisation fiscale


Le grand entretien Luc Frieden

“A developed Society without a financial sector cannot exist any further”






Isn’t finance too serious a matter to be entrusted only to financiers? I think that finance is an extremely important element in our society and it has a technical aspect that has to be managed by financial actors; but it also has practical and regulatory aspects that have to be dealt with by financiers, politicians, and, I would add, by citizens. We need finances to survive. Those who organise the financial world must always keep in mind that finance has a purpose which is not only to make money, but to support economic and social development, and that is a task in which more than one category of people must participate. What is the most difficult task in your relationship with the financial community?

son in this context. My goal is to make sure that the service sector-of which the finance industry represents the vast majority-can be developed with strong government support. This means that I try to listen to the needs of the financial centre, I try to anticipate international developments and to make sure that the right legal framework is in place to offer an attractive environment for innovative products. The future success of the financial centre will be to realise that the world is global, that there are a lot of new ideas that should build the basis of further development in our country. It is a task for the minister of finance to make sure that this framework is in place and this should be in close cooperation with financial actors.

and developed world. Not by demonising financial actors, but by trying to identify what went wrong during the crisis and what can be improved, as well as by making sure that in future the world of finance remains competitive and trustworthy. That is a challenge for Luxembourg. What vivid memories remain from the moments of urgent meetings, negotiation and decision-making regarding the rescue of Fortis and Dexia by, among others, Luxembourg’s government? In retrospect I am very proud about what we achieved in this context because our main purpose was not to rescue the banks as such, but to save the clients’ assets deposited in them as well as the jobs of those

I don’t think that the finance community is one block which thinks in the same way. There are people, and probably the majority, who share the view that we need financial products to support the rest of the economy. There is, however, a small minority who think that one can just do anything to make a maximum amount of money. I have the impression that the first group

“I do see myself as a spokesperson for the thousands of people working in this sector”. represents the majority in Luxembourg, and that probably explains why the country has managed to develop as a serious financial centre where excessively risky transactions did not take place. Do you have a political, economic or financial who inspires your missions, daily work and decisions-be they political or regarding the financial centre? I have no role-Model who inspires me in my decisions. I am a pragmatic per-


Is an economic crisis not ultimately the most challenging situation that a finance minister of a country hosting a financial centre could dream of?

working in these important institutions. It was probably the single most important decision I had to take as a minister in charge of the financial centre.

It was a challenge to be minister of finance during the crisis, but I think that the crisis puts everything in a new perspective: with regard to the role of the state vis-à-vis the economy and with regard to the attitude of business people vis-à-vis risky transactions and the effects of these on the rest of society. The financial crisis requires that we redefine the role of finance in a modern

What impressed me most was the speed at which we had to take those decisions. There was no time for extensive analysis. Action was required, and realising that no private actor would jump to the rescue, we had to take responsibility. It could have gone wrong, but it became a success and I think that was a sign that governments can take actions that probably no other actors



in society would take. It was also proof that governments can work together, because the co-operation between the Luxembourgish, Belgian and Dutch governments in the case of Fortis, as well as the Luxembourgish, Belgian and French governments in the case of Dexia, was extremely constructive and successful. It was a common success. From a personal point of view, the teams built up at that time, with the representatives of our government, remain very special and unique. And what were your feelings when you had to take such decisions as a matter of urgency, knowing that these would have long-term social, economic and political impacts on Luxembourg as well as on the financial centre? I felt, right from the beginning, that I had to take on all these responsibilities, because the risk for the societies concerned would have been bigger if we had not intervened. Therefore I was resolved to take dramatic action. The decision made over the weekend to provide a rescue package of 2.5 billion euro was a step that had to be taken. Indeed it is quite an impressive amount of money for a Luxembourg finance minister. I do have to say that at this moment I couldn’t tell whether everything would go well, but I only knew that the alternative would have been worse. That is why I proposed taking this action. Did you feel alone in this final decision-making process? I could count on the strong support of the Prime Minister for all those important decisions. How would you summarise those two years of economic and financial crisis? I am relieved that all the actions we took, both at the European and national level, led to a quite substantial improvement in the situation. That is true for the banks, but it is also true for the stabilisation of the eurozone. Of course the two go hand in hand, because without the financial crisis




the crisis in public services, and therefore in the single currency zone, would not have occurred. I know that we are on the right path. I am optimistic about the future, but we must of course realise that the reorganisation of the financial world is not yet complete. A lot of work still has to be implemented. A lot of political decisions have been taken, but have not been fully implemented. Moreover, the critical situation of the banks in some countries as well as of public finances, with too high debts and deficits, will have a serious impact on the years to come. So we are far from having overcome all of the problems and our energy has to be 200% dedicated in the coming years to make sure that Europe remains an attractive place where people want to invest. During this sensitive period, which of your political principles and personal convictions were questioned, and which ones did you give up? My political purpose was to do the best for the public interest, which by the way is the main reason for doing politics. Before entering government I used to work as a lawyer; there you serve one or more clients. As a minister you work for the entire society and as a finance minister, particularly during a crisis, you have to take into account the interest of various groups in the country. Everybody in a society, whatever their income is, needs banks and therefore a developed society without a financial sector cannot exist any further. Hence, I did not need to give up any principles, but I had to focus on the goals which were to make sure that the financial system and the trust in the financial system would remain intact. That is also my main concern for the future: people must have trust in the banks, in which they deposit and from which they borrow their money. Moreover, the higher deficits, as well as the higher debts, which we accepted during the crisis are a deviation from my traditional principles of sound public finance, but to my mind they should remain a temporary solution with


a time-limit. In other words I think that a small country, which ought to have a strong economy, needs sound public finances. I never gave up on those fundamental principles, but if I allowed any deviation from those during the crisis, I don’t accept such exception in the medium and long-terms, because that would play against the interests of our country. Does it mean that the most difficult tasks of your mandate are still ahead? I think that the rescue of the banks and the stabilisation of the euro were extremely heavy duties, but they were understood by the majority of people. The reduction of the public deficit and debt will be an exercise that will take time and will be extremely difficult for citizens to accept. But that is a part of the finance minister’s job, which has to be taken seriously. I would be more popular if I said ‘I don’t mind if we have high deficits’. But my interest is that those who will take this office in the future will not be left with problems to fix. It is now that we have to solve them, so that the economy can create jobs in the future. Therefore, as difficult as the task may become, I am ready to assume the job in the future. What lessons do you draw from the multiple pressures put on Switzerland and Liechtenstein to loosen their bank secrecy? Could Luxembourg have been the next on the list? We have an international financial centre and therefore it is clear that we must adhere to international rules and listen carefully to recommendations and criticisms as we are doing business with other places in the world. Does it mean that they are always right and we are always wrong? The contrary does not necessarily apply either. So we are willing to discuss new rules on financial regulation, including tax rules. What we would like to have are just vertical and constructive discussions. Although we cannot exclude new waves of pressure, I must say that we have had constructive discussions with our neighbouring countries


on those issues in the past 12 months, and I am hopeful that this will be so in the future. We need a discussion on how to combine efficient taxation and privacy rights. Both are, in my view, important elements in this discussion and for our citizens. What do you expect from the new European financial supervision architecture? As we have cross-border activities, I think it is good for Luxembourg and Europe to set up some institutions that can efficiently act in times of crisis at a European level. All the instruments, such as the European Banking Authority and the European Systemic Risk Board, are useful to prevent new turmoil. I think that our country can only benefit from such structures. It also encourages trust in the financial centre of Luxembourg, because the supervision becomes more European, and at the same time we manage to keep an efficient onsite supervisory authority with the Commission de Surveillance du Secteur Financier (CSSF) and the Commissariat aux Assurances. A global world requires that one exerts sovereign rights. That is what we did here, and therefore I am optimistic that these new institutions will also strengthen Luxembourg’s financial centre. How can Luxembourg differentiate within these new regulatory contexts? I think it can. I would like the financial centre to develop further in the coming years. Hence, I would like to fully support the introduction of serious new financial products with the appropriate legal framework. I will do the utmost to help the financial centre to acquire new clients from new countries. That is why I will increase all efforts in the targeting of new markets such as the Gulf States, Latin America and Turkey, without neglecting our traditional markets, of course, but bear in mind that the financial world is much broader than it was in the past. I will also try to build on the existing strength in the private banking and fund


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businesses to make sure that we are fast in implementing new legislation and in involving them in a business friendly manner, and finally I will discuss how to improve both the attractiveness and competitiveness of our financial centre with the financial community. All those combined elements will make sure that Luxembourg remains a leading financial centre in Europe. That is my priority goal and I will not be satisfied with just keeping the existing ones. I am therefore ambitious to improve the expansion of the financial centre in its activities and importance. What would the financial centre become without Luc Frieden? Everybody can be replaced, but I like to do this job because it is about creating prosperity and jobs for this country, and it is my duty to remind people that this country would not be as prosperous as it is without this financial centre. I do realise that the general public opinion in the world has become sceptical towards banks, due to the financial crisis and to what went wrong among banks, but as Luxembourgers we shall always remind ourselves that we have a strong interest in developing the financial centre and that we should undertake no action that will remove the financial centre from our economy. A small economy needs a strong service sector. What we built up over the past 30 years needs to be further strengthened and therefore I do see myself as a spokesperson for the thousands of people working in this sector, but also as an advocate for the broad, serious and well-predisposed international financial sector of Luxembourg. This sector opens the doors of our country to the world and allows us to have a high quality of life in this land. Bringing all of this together is a huge challenge, which I am happy to face. It seems that a sociological identification gap remains between Luxembourg’s society and its financial sector. How do you work on this? I think that the financial sector is part of


our society and I think people do realise that it plays an important role. Maybe it is true that we do not manage to push young people in sufficient numbers to be interested in the financial sector and that too many of them want to work for the public sector. Maybe a better mix of foreigners and Luxembourgers in the financial sector would be an advantage from a sociological point of view. Therefore we must better explain the opportunities that this industry can offer. Could the financial sector anchor more strongly into Luxembourg’s society like the steel industry did in the past? I think that the sector is quite well anchored into our society and that the people of the various sectors live quite close to each other, because of the size of the country. We probably have to make sure that Luxembourgers and non-Luxembourgers discuss more and together about the issues and the challenges the financial sector is facing. What could Luc Frieden become without the financial centre? I could imagine doing a lot of things, but so far, next to my strong interest in constitutional issues, my life as a lawyer and as a politician has been closely linked to the financial centre-ever since I came back from university. So I think, for the foreseeable future, that my life will remain closely related to the financial centre. Is it true what they say: that you might be Luxembourg’s next Prime Minister? Provided that it will be for my party to held that position, the Prime Minister and my party will decide that when the question arises. This is not an issue for the moment. Luxembourg’s actors or legislation are regularly subject to violent criticism from abroad. Don’t you think that the silence, the refusal to co-operate or sometimes the bad faith with which


the government and the financiers respond to those criticisms might have a negative impact on the country and for its financial centre? Negative publicity is always bad for a country and we must certainly openly discuss those issues, not only in Luxembourg, but also with the other countries. I do think that a lot of things happened, mostly within the banks and within our legislation. I think that privacy rights and bank confidentiality will remain important, but I also realise that some rules, which apply in our country, are not acceptable for the international community. I therefore think that we will find a way to keep bank confidentiality, and to communicate about this more actively, while at the same time making sure that appropriate mechanisms are in place to prevent abuses leading to tax frauds. This will be a difficult path to travel. We will also have to make sure that banking confidentiality remains among the many attractive tools that the private banking industry has to offer. I think that the banking community is aware of that issue. The traditional banking secrecy has already changed over the last two years and this has not led to major changes in the financial centre. I have no intention of changing the current legal dispositions within the next few years. The banks should use the coming years to modify and continue modifying their strategy vis-à-vis their clients, and we will make sure at a European level that Luxembourg remains a place where international private banking can be done with a tight intention to revitalise the European private banking market. The criticisms of Luxembourg about banking secrecy were only addressing banks and mostly the private banking industry. Some say that audit, accountancy or even legal professionals can be the next targets. Do you think that Luxembourg can come under attack again ? I think that the success of Luxembourg will always create jealousy and therefore quite



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Global News > IT Banker When IT goes finance p16 > CRD II, c'est déjà demain p22 > Fatca It's getting serious for the financial sector p26 > UCITS IV Risk management in a two-view p28 > Investment 5 indexes to keep art in good hands p33 > Global etc p34 > Laurent Vanderweyen (JP Morgan Bank Luxembourg) Serving the funds p36 > Companies etc p38



Special Issue EVENT


When IT goes finance IT Banker prepares the bank of tomorrow. The third ITBanker Forum, which held last 16 November at Chambre de Commerce (Luxembourg Kirchberg) gathered Finance and IT professionals. In two sessions of four workshops each, experts shared their views on the current and future challenges the Financial Center will have to cope with: whether these be innovation-, regulation- or customer-oriented.

Innovation Every cloud has a silver lining The outsourcing of large supply chain segments and services is about to change the financial industry’s back and front office approach. More than just contracting primary operations and responsibilities to a third-party service provider, more than just delivering a routine service from the IT point of view, Cloud Computing and Business process outsourcing (BPO) represent significant strategic and business shifts for the financial sector. “Over the last decade, the Swiss banking market has undergone significant changes and revolutionized the way it works, Fabrizio Romano of Finnova software states. Key to these changes was the dawn of business process outsourcing and resource pooling–both proven meth-

ods for cost control and core business concentration today”. For Armelle Dixneuf of IBM, technology is becoming increasingly influential, whatever the industry, as it offers many opportunities to increase productivity and address new markets or players. “The buzz around smarter industries, cloud computing, business analytic and social networks is not only a buzz, she said. The trend is there. And some institutions already leverage these new technologies and concepts”. In an outlook of the technology domains, which will prevail and change most in the next five years of time, both panelists gave examples of situations where the business can take advantage and prepare for the future business needs. This was all about data or information, transaction flows, risk management integration and delivery models such as cloud computing or “fit for purpose” infrastructures.

Workshop-Cloud Computing / BPO Speakers - Armelle Dixneuf, Banking and Financial Markets Industry Technical Leader at IBM France - Fabrizio Romano, Manager Business Development & Sales at Finnova Moderators - Dominique Kindt, European Outsourcing Association & EquaTerra Belux. - Sundhevy Goïot, Alco Member by

EVENT Special Issue

Spirits in the material world How to support dematerialization projects in a material world? “In the new economy“the main priorities for companies looking to automate workflow and content management aim to solve business problems; it is not about managing and implementing software“, said Mark Williams the CEO of Isiwis. Companies expect content-ready applications, which respond to their specific departments and business needs. Instead, “most traditional Document Management solutions often fall short in their promise to deliver a unified and single platform to manage enterprise content in a cost-effective way”, Williams noted. “Companies can better work together by exchanging business documents electronically in the financial supply chain, “explained Roberto Ditroia, manager at Clearstream Services. By streamlining electronic information flows, business can be done more efficiently, at lower cost, with fewer errors and less manual interference, and with more respect for the environment”. At European and national levels, electronic archiving services and the law enforcing characteristics of electronic documents are being addressed. “This leads to the creation of a certified notary, with formal criteria for the certified e-Document authorities”, Michel Gilis of AdValvas Europe added. In all cases, dematerializing documents first implies securing the long life storage documents. “A solid electronic archiving infrastructure is key. Unifying documents, whatever the source or format on a single

consolidated archive is equally important if you want to stay on top of the process”, both experts concluded.

WorkshopFinancial Workflows Optimisation Speakers - Mark Williams, CEO at Isiwis - Michel Gilis, CEO at AdValvas Europe Moderator

While presenting a customer case study Callataÿ & Wouters detailed the changes that banks will need to make to their payments infrastructure. The role of IT is to accompany the standardization process of this fragmented payment market. According to SAP, the transformation scheme includes among others: the uniformity in the solutions with other services; the consistency in payment standards; frameworks and instruments; the high level of interoperability among different schemes; a consolidated implementation; the reduction in as well as improved risk management & high efficiency.

- Fréderic Foeteler, Luxtrust

Payments: greening the gray area “Much of the recent debate around payments has been focused on the low average levels of migration to SEPA instruments and the lack of a business case for adoption, Abdelmajid Moujane of Callataÿ & Wouters remarked. While banks are undoubtedly struggling to make the case for investing in a new payment infrastructure following a period of such industry turmoil, it is important that the bigger picture is taken into account”. The main objectives of SEPA are to provide a single area as well as a single account for all payments across Europe. This standardization presents an opportunity for the banks to renew their payments applications and defend or increase their market share in payments and related products.

Workshop-Payment Standardisation Speakers - Abdelmajid Moujane, Business Expert with 26 years of experience in the banking sector, Callataÿ & Wouters - Lahoucine Afif, Principal solution consultant in the areas of Finance and Risk Management at SAP Moderator - Jean Diederich, APSI President and member of ABBL's CMPSIS



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EVENT Special Issue

Regulation Basel II and III: the Swiss clocks “The financial crisis has resulted in taking strong and decisive action in many countries and regions of the world to prevent a similar recession and near meltdown from happening again, “ Thierry López explained. “The resulting regulatory changes, which in the EU are essentially materialized through various revisions of the Capital Requirements Directive (CRD), will undoubtedly directly impact the IT community”. For the Basel II Leader at PricewaterhouseCoopers, implementing CRDII needs adapted supporting IT tools to help identify, measure and report on groups of clients (CRD II). Also, CRD III compliance cannot be fulfilled without strong quantitative IT solutions given the complexity and frequency of the transactions involved. Furthermore, coping with CRD IV (a.k.a. ‘Basel III’) means relying on supporting systems, which must be able to monitor positions at any time and in changing environments. From an operational standpoint banks say they are ready. The major pitfalls seem then to be excluded. On the IT side, however, compliance continues to unfold. “If banks are to organize and implement control procedures, their systems must also be able to provide the required information”, Herbert Muck of Exigo commented. Technically, these regulatory compliances mean a reorganisation in terms of work, a review of specific procedures and controls to be applied within the various departments (es-

pecially in the back-office especially). Experience shows: each financial institution will try to implement these constraints as late as possible as their available resources primarily focus on positions that generate revenue and not those who bring costs.

Workshop-Basel III Speakers - Thierry López, Basel II Leader at PWC Luxembourg - Jean-Philippe Maes, Manager, Risk Management Services and Basel II Expert at PWC Luxembourg - Herbert Muck, Business Development Manager at Exigo

for various reasons. This will remain under the responsibility of legal and business compliance.“ On the other hand, increasing volumes and crossed interactions between financial players implies the industrialization of transaction monitoring; this will allow detection of unusual and risk-bearing activities, which potentially differ from the client profile and business. “In this respect the use of efficient AML tools can provide a great level of support”, Mertens added. Close cooperation between business partners can offer turnkey, cost-effective and safe solutions for all providers of financial services. These might help them to cope with the national and international regulations addressing money laundering and terrorism financing.

Moderator - Anne-Laure Mention, CRP Henri Tudor

SensITive AML

Workshop-AntiMoney Laundering Speakers - Jan Mertens, Director at ABAX

“In the field of Anti-Money Laundering and Terrorism Financing, Luxembourg has reached a certain level of maturity”, Jan Mertens noticed. Nevertheless the business context is evolving due to changes that globalization, new economy, new investors, geopolitics and the legal framework might incur. For the Director of ABAX ConsultingPKF, in this sensitive and ever-changing landscape “a number of tasks related to AML require (and will keep requiring) human involvement because the interpretation of laws and circulars remains subjective

Consulting - PKF - Stephan Radermacher, Account Executive Financial Services, Service Industry and Utilities at Siemens IT Solutions and Services Finance s.a. - Dr. Michael Schmidt, Account Executive at Tonbeller AG Moderator - Stéphane Badey, Compliance Europe, RBC Dexia Investor Services Bank S.A.



Special Issue EVENT

“Dura lex sed lex”: that’s IT “New financial regulations have a strong impact on both the processes and infrastructure, recognized Gilles Tourpe of Platform Computing. These must be adapted in order to cope with the new regulatory requirements, to fulfill the mandatory criteria set and reviewed by regulators as well as in order to serve the customers’ internal business needs”. In this context, the computing becomes important and a strong infrastructure development is expected in the coming years. For Emmanuel Lecerf (Platform Computing), companies specialized in computing financial environments can help their customers adapt to changes and anticipate these in deploying scalable and high performance environments, while reducing their risk-simulation run times.

WorkshopInfrastructure Impact of Upcoming Regulations

embraced customer segmentation with the aim to affiliate their clients into specific channels and services. However, these segmentation strategies show some limitations, as they fail to extract value Therefore the key challenge for banks would be to have more and more frequent data to analyze. “What could help banks maximize customer value and transition customers to greater value and loyalty? And how can front-office technology help to restore customer confidence? ”, asked Didier Pitton of Odyssey (Temenos group), a financial technology company specialized in frontand middle-office software for the Private Banking, Private Wealth Management and Asset Management industries. Our clientcentric approach dedicated to Private Wealth Management is threefold, he answered: “Front-office technology can help providing structured suitable investment advice; it can also enforce Service Level Agreements (SLA) and can help to clarify the risks associated with investments”.

WorkshopCustomer Care

- Gilles Tourpe, Sales Manager, Financial Services Industry at


Platform Computing

- Abderrahim Labbi, CRM Research

- Emmanuel Lecerf, Solution

Leader of IBM Research Labs in

Architect, Financial Services Industry

Zurich - Didier Pitton, Vice President

at Platform Computing

Marketing Product Management Moderator

at Odyssey Financial Technologies

- Didier Marcelis, EFA Luxembourg

(Temenos Group) Moderator


- Muriel Foulonneau, Henri Tudor Research Center

Keep ’em … for ever


Workshop-Flexible Offerings & Pricing Solutions Speakers - Olivier Parisot, Managing Consultant at IBM Global Business Services France Moderator


How to better assess and manage customer value dynamic marketing optimization techniques and tools in order to improve customer lifetime value and build customer equity. “Managing customer interaction is an increasingly challenging task for today’s banks, explained Abderrahim Labbi of IBM Research Labs (Zurich). Especially when consumer expectations are significantly growing.“ Many banks defined, applied and

more than ever banks need technologies effectively to manage their product offerings and pricing policies. IBM detailed a twoside solution based on two main marketing trends. The first aims to build a dynamic offer, which takes into account the evolution of banking services consumption by the customers. The second tendency aims to reposition pricing as an essential strategic tool, in order to preserve and increase the bank's customer portfolio: “this positions the customer in the center of the commercial approach”, Olivier Parisot said.

Knot Your Customer “Customer Centric Offering & Pricing is a strategic weapon for acquiring new customers and, as importantly, retaining existing ones”, Olivier Parisot (IBM) asserted. Hence effective and innovative products offerings and pricing strategies are crucial for banks to achieve organic growth”. Indeed, with the current economic downturn,


- Laurent Bravetti, Henri Tudor Research Center


By Marc Auxenfants

rd edition

On a smarter planet, answers are hidden in the data. Here’s a bold prediction: The biggest leaps forward in the next several decades—in business, science and society at large—will come from insights gleaned through perpetual, real-time analysis of data. The new science of analytics must be core to every leader’s thinking. Because while data is growing exponentially today in volume and complexity, time is not. There are three keys to moving from “big data” to smarter data: organize your information, in all its diversity; understand its context; and manage its continual evolution, in real time. Through smarter data, we can make sense of information in all its forms—structured and unstructured, text and multimedia. That’s how Netherlands Railways is able to weigh 56,000 variables (including the railroad’s rolling stock, weather patterns, passenger demand) to assemble and schedule more than 5,000 passenger trains per day, improving operating efficiency by 6% and saving an estimated 20 million euros annually. Through smarter data, we can also see how one piece of information relates to the things around it. Nearly useless by itself, a data point can now be IBM, the IBM logo,, Smarter Planet and the planet icon are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Other product and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the Web at © International Business Machines Corporation 2010.

put in context, and that context can be analyzed in real time. Spanish oil and gas company Repsol uses predictive analytics to parse huge volumes of seismic data, boosting the success rate of its exploratory efforts. Lastly, smarter data, delivered in real time via new computational models like stream computing, lets us make fact-based projections in a world where risk and opportunity are constantly in fl ux. So doctors in a Canadian hospital treating high-risk newborns can identify patterns within an array of physiological data to help detect life-threatening infections up to 24 hours sooner. As thousands of forward-thinking leaders today are discovering, their data’s hidden meanings don’t just make their companies smarter. They also increase the growth, transparency, sustainability and knowledge of entire industries, and of our whole planet. Which is turning a bold prediction into a promising reality. Let’s build a smarter planet. Join us and see what others are doing at



CRD II, c’est déjà demain Si Bâle III suscite inquiétude et prises de positions contradictoires, on en oublie que les dispositifs de Bâle II continuent encore à se mettre en place. La crise financière a mis en lumière l’existence de dysfonctionnements dans le cadre réglementaire d’exigences en fonds propres que doivent détenir les établissements bancaires pour couvrir leurs risques. Le Comité de Bâle a dû y répondre au cas par cas: une série d’amendements aux dispositifs de Bâle II a donc été proposée. Celle-ci a ensuite été reprise côté européen sous la forme de trois directives “fonds propres réglementaires “dites CRD (pour “Capital Requirements Directive“) transposant dans la législation européenne ces adaptations au second accord de Bâle. Si les deux premières (CRD II et CRD III) sont principalement des ajustements au dispositif existant, la dernière (CRD IV ou “Bâle III“) est une réforme plus globale inscrite dans le moyen (2015) voire le long terme (2018). “Ces réformes visent donc à mieux adapter les fonds propres exigés des établissements financiers pour faire face aux risques encourus par ceux-ci dans l’exercice de leur activité, “ explique Martin Flaunet, Partner chez Deloitte Luxembourg. Pour ces trois nouvelles directives (ou projets de directive) qui ont vu le jour depuis 2008, le parcours législatif se situe aujourd’hui à différents niveaux d’avancement. Ainsi, la CRD II-qui prévoit un ajustement des critères d’éligibilité des instruments de capital hybrides, une révision du régime des grands risques et une amélioration des techniques de gestion des risques liés à la titrisation-a été transposée le 20 juillet dernier en droit luxembourgeois par la circulaire CSSF 10/475. Elle sera effective au 31 décembre prochain. “Pour employer une terminologie IT, les CRD II et III sont des "fix" dont l’objectif


est de debugger certains aspects de Bâle II ayant démontré des dysfonctionnements ou fait apparaître des oublis, que leur mise en pratique depuis 2007 et/ou l’intensité de la crise financière ont mis en lumière, “ commente Martin Flaunet. Cette série d’adaptations prévoit une formalisation accrue du cadre des gestions des risques liés aux activités de titrisation, tant du point de vue documentaire à l’achat, qu’en termes de transparence d’informations (notamment au travers des obligations du pilier III), ou dans les obligations plus strictes faites aux sponsors de ces produits titrisés. Par ailleurs, elle impose, aux banques investissant dans ces produits, des exigences minimums de fonds propres supplémentaires, en donnant une définition de la charge en capital requise plus adéquate, plus précise, et en ligne avec ce métier innovant et complexe. Ces suppléments touchent aussi bien le portefeuille de négociation (trading book) que le portefeuille bancaire ou d’investissement.

Révision des grands risques Pour ce qui est de la conformité aux prescriptions de la CRD II et de la CRD III, les banques luxembourgeoises ne devraient pas rencontrer de problèmes majeurs. Pour M. Flaunet elles sont prêtes et ne devraient pas en être trop affectés: “Pour tout ce qui touche à la titrisation par exemple, la question se pose moins au Luxembourg, sauf dans des cas très ponctuels. Je pense que depuis deux ans les établissements en connaissent les risques et les règles, et documentent déjà les produits sur lesquels ils s’exposent.“


Cependant, un autres aspect CRD II a des implications bien plus profondes pour ces institutions: celui des grands risques, plus particulièrement pour ce qui concerne les échanges interbancaires. Dans le régime des grands risques revu par la circulaire de la CSSF, la notion de groupe de clients liés a été étendue et n’intègre désormais plus uniquement le point de vue capitalistique, mais aussi l’interconnexion économique, y compris le financement. “La notion prendra maintenant en compte les contreparties liées par une dépendance en matière de source de financement, ainsi qu’en termes de survie économique vis-à-vis, à la fois des autres établissements du groupe, mais aussi de leurs propres clients“, détaille M. Flaunet. Concrètement, ces banques devront s’assurer qu’une information sur les liens économiques entre leurs différents clients existe dans leurs systèmes, et qu’elles peuvent effectuer sur ce point une traçabilité qui intègre la notion de risque au sens large pour tout ce qui touche au client. Pour Martin Flaunet, de nombreuses institutions se seront mises aux normes avant la date butoir. Cependant certaines pourraient se retrouver avec des dépassements de limites, qu’elles devront corriger assez rapidement. Second point sensible pour la place: le régime des grands risques sur les expositions interbancaires, pour lequel certaines banques devront revoir leurs modèles d’affaires et leurs procédures de trésorerie. “Au lieu de travailler comme actuellement avec un nombre restreint de contreparties, les établissements financiers pourraient


devoir revoir (parfois sensiblement) à la hausse leur nombre, en fonction de leur taille et de leurs fonds propres, “ prédit le Partner de Deloitte. Sur ce point, une possibilité d’exemption s’offre cependant aux banques: “Jusqu’à présent on vivait dans un régime avec de nombreuses exemptions, commente M. Flaunet. Celles-ci vont quasiment disparaître, sauf, ce qui est important pour le Luxembourg, les exemptions sur les expositions intra-groupe.“ En effet, la plupart des institutions financières opérant au Luxembourg sont majoritairement des filiales de groupes étrangers. De par la tradition et de par leurs métiers, elles affichent donc de larges excédents en ressources qu’elles replacent auprès de leur maison-mère. En termes de gestion de trésorerie et de coûts des transactions, l’impact ne sera donc pas aussi lourd pour les entités qui bénéficient de cette exemption et les conséquences sur leur mode opératoire devraient être plus limitées. Cette exemption n’est cependant pas automatique: elle doit être demandée (si elle n’existe pas déjà) auprès du régulateur luxembourgeois. Aussi, Martin Flaunet reste globalement confiant: hormis quelques détails, la majorité des établissements sera prête pour janvier 2011: “Les banques mettent actuellement en place des reportings, procèdent à l’analyse des écarts et s’adaptent aux modifications liées aux grands risques: demande d’exemptions (notamment pour les expositions intra-groupes); remodelage des portefeuilles crédit, conformément aux limites fixées par la circulaire; développement de techniques d’atténuation du

Martin Flaunet, Partner (Deloitte Luxembourg)




risque de crédit, pour le régime des grands risques, etc. Elles en profitent également pour s’informer et analyser l’impact (potentiellement bien plus important) des différentes mesures prévues dans la dernière des trois directives (CRD IV), qui devrait être transposée localement endéans 2 à 3 ans et être d’application d’ici 4 à 7 ans selon les thématiques “.

Conformité IT: en cours Du point de vue opérationnel les banques se disent prêtes et les écueils majeurs semblent écartés. Côté IT cependant, la mise en conformité continue à se déployer. “Si les banques doivent s’organiser et mettre en place des procédures de contrôle, leurs systèmes informatiques doivent aussi être en mesure de fournir l’information donc celles-ci ont besoin“, note Herbert Muck, Business Development Manager chez Exigo. Spécialisée dans le secteur financier, la société de consultance IT accompagne les institutions financières dans la mise en place de leurs logiciels bancaires. “Concrètement, nous assurons la traduction des exigences réglementaires financières dans les systèmes d’information mais aussi dans les processus métiers, “ indique M. Muck.

La mission comporte, outre un volet technique, une démarche de sensibilisation: “Lorsque les banques reçoivent les circulaires, leurs principales difficultés au niveau opérationnel est d’adapter leurs processus métiers, et de connaître aussi les impacts de telles adaptations sur leurs systèmes d’information, “ précise-t-il. Techniquement, ces mises en conformité réglementaire signifient une réorganisation en termes de travail, une revue des procédures et des contrôles spécifiques appliqués au sein des différents départements (notamment dans les back-offices), jusqu’à la mise en place des nouveaux paramètres systèmes qui reflèteront ces nouveaux processus. “Ces paramètres peuvent être très techniques, par exemple, au niveau de la configuration des logiciels qui vont établir des nouveaux critères de sélection et indiquer des nouveaux seuils d’exigence, détaille le consultant. Ce peut être aussi des paramètres plus contextuels qui tiennent compte, non plus de critères physiques statiques, mais plutôt d’un ensemble d’opérations. On entre là dans le cadre de la business intelligence, où on étudie de manière rétroactive le comportement du flux de transactions.“

Après le 1er janvier, une seconde phase de maintenance et de reporting débutera, suivie ensuite d’une phase d’optimisation, voire d’industrialisation: “Les délais de mise en application des nouvelles réglementations sont souvent courts et contraignants pour les banques, justifie M. Muck; nous allons essayer d’intégrer le processus au sein des entités pour le rendre plus simple, plus rapide et plus fluide.“ Par expérience, rappelle le consultant, chaque établissement essaiera de mettre en application ces contraintes le plus tard possible. Les ressources disponibles dans l’entreprise seront avant tout concentrées sur les postes qui génèrent des revenus et non ceux qui apportent des coûts. Les banques ne sont néanmoins pas au bout de leur peine. Parallèlement à la CRD II, elles planchent déjà sur la III et la IV, dont le délai de mise en application est prévu pour 2018, pour cette dernière… Si le calendrier prévisionnel est respecté…

Herbert Muck, Business Development Manager (Exigo)



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FATCAA disproportionate administrative burden

GĂŠrard Laures

Partner, KPMG Luxembourg


The U.S. Congress estimates that the United States currently lose $100 billion annually to offshore tax abuses. In his endeavor to halt the perceived abuse, President Obama signed a law, named Foreign Account Tax Compliance Act (FATCA) on March 18, 2010. The new law will require non-U.S. financial institutions to make additional efforts in identifying and reporting U.S. beneficiaries. In Luxembourg, banks, investment funds, insurance companies as well as wealth managers will be impacted. Given that the new regime starts on the 1st of January 2013, there is limited time left for the affected institutions to prepare and implement the burdensome requirements. Under the FATCA rules, a foreign financial institution (FFI) would need to enter into an agreement with the U.S. Treasury to provide information about its U.S.


account holders each year. Failure to conclude that agreement would result in a 30% withholding tax applying to U.S. source payments made to the FFI. These payments would include dividends, interest and sales of U.S. securities. The agreement will require that an FFI obtains information from each account owner to determine whether the account is a U.S. account and submit an annual report of information with respect to its U.S. accounts to the U.S. tax authorities. This includes those accounts of nonU.S. entities that are substantially held by U.S. persons. For payments to so-called recalcitrant account holders, the FFI would need to apply a 30% withholding tax. For U.S. account holders who would not grant a banking secrecy waiver, the FFI would need to close the account after a certain period of time.

Huge scope of the law It is clear that a major motivation of the drafters of FATCA was to make the system as watertight as possible. Indeed, over the last two years U.S. investigators discovered that U.S. tax cheats used foreign banks to evade taxes. For this reason, the new regime has been set up so broadly that almost no financial sector escapes. Banks, investment funds, insurance companies, wealth managers, trusts, partnerships, private equity and other vehicles will be FFIs and required to apply FATCA. What makes the regime so burdensome is that it requires specific documentation to be collected for virtually all account holders of an FFI. Some retails banks in Europe have millions of accounts; therefore it is not difficult to imagine that investigating all these accounts is a huge task.


“The estimated number of impacted financial institutions, investment funds and insurance companies (several hundred thousand worldwide) is potentially higher than U.S. tax evaders"

Key Luxembourg financial sectors impacted too Luxembourg banks that offer the possibility to their customers to invest in U.S. securities will need to apply the new documentation and reporting procedures imposed by FATCA. Accounts will need to be analyzed to ensure they are not U.S. accounts, IT systems will need to be upgraded, procedures need to be created or adjusted… all within 24 months. Another key Luxembourg industry that will be impacted is the investment fund industry. However, the question is as to whether the FATCA provisions are feasible at all for Luxembourg investment funds, given the European investment funds distribution model. Indeed, UCITS vehicles are typically sold through various intermediaries who do not pass on the information regarding the investors to the

Comments and suggestions from the industry

the definition of an FFI and details with regard to the documentation and reporting obligations. Nevertheless, there is much disappointment that the Notice left many questions unanswered. As an example, the Notice did not contain the broadbased carve-outs for widely held investment vehicles that many had hoped for.

The new FATCA law left significant discretion to the Treasury with regard its implementation. For this reason, representatives of different industry associations entered into dialogue with the U.S. Treasury. With the aim to provide further guidance regarding the implementation of the FATCA provisions, the Treasury released Notice 2010-60 on August 27, 2010. The Notice has the objective to set forth the general framework for implementing FATCA. In particular, the Notice provides for certain exemptions from the withholding obligation,

However, even though there are still uncertainties, all potentially impacted institutions should quickly start investigating how they will be affected and what they can already do now. Although no official statement has been made yet, it is expected that draft regulations with clear guidance will only be published in summer of next year. However, as the new rules will start in 2013, it would certainly be imprudent to wait until the draft regulations are issued before beginning with an impact analysis.

fund. Finally, it is expected that insurance companies selling the very popular unit-linked life insurance contracts will also be captured by FATCA. Certain wealth managers might also be inside its scope.

Conclusion The U.S. Government introduced the FATCA provisions with the clear intention of closing possible loopholes of its current tax system. At present, however, the FATCA provisions seem to put a disproportionate administrative burden upon foreign financial institutions. Remarkably, it is expected that FATCA generates an additional 300 million U.S. dollars in tax revenues annually. Compared to the estimated 100 billion of estimated annual total tax abuse, this seems rather insignificant. It is also interesting to note that some commentators estimate the number of impacted financial institutions, investment funds and insurance companies to several hundred thousand worldwidethan U.S. tax evaders.




Risk management

UCITS IV in a two-view Two experts review the UCIT approach on risk requirements, measurement and exposure and explain what will change for both the industry and Luxembourg.


//// Risk governance ////

Marco Zwick, President of the Luxembourg Association of Professionals in Risk Management (PRiM)

UCITS IV defines additional organisational requirements in terms

Olivier Carré, Regulatory Advisory Partner, PwC Luxembourg

of the fund risk governance, including Compliance, Internal Audit and Risk

A risk succession

Where we are now

Risk management is not a new concept in the Luxembourg fund industry, as it has existed since the creation of the “UCITS” label and has been formalized under UCITS III. The Luxembourg regulator CSSF defined the risk management requirements back in August 2007 by way of their circular on the “rules of conduct to be adopted by undertakings for collective investment in transferable securities with respect to the use of a method for the management of financial risk, as well as the use of derivative financial instruments”. CSSF circular 07/308 sets the organisational principles for measuring risks in sophisticated and non-sophisticated investment funds and determines the rules for calculating and monitoring the fund’s global exposure (commitment approach versus Value-atRisk calculations), counterparty risk and concentration risk resulting from all the portfolio’s positions. It further outlines the coverage rules applicable to financial derivatives instruments and the valuation

UCITS IV is the new European directive (2009/65/EC), which replaces UCITS III and sets the framework for harmonized investment funds benefiting from the European distribution passport. The new framework addresses certain provisions and aspects, which have been identified by the European Commission as the most significant for the European market. These are financial market efficiency, the reduction of existing administrative constraints and investor protection. The framework includes some major amendments to the existing UCITS regime, such as the implementation of a European passport for management companies; a harmonized legal framework for cross-border UCITS mergers; a simplified regulator-to-regulator notification process; the replacement of the simplified prospectus by the new standardized Key Information Document (KID), which shall ensure adequate investor protection and comparability. The draft bill implementing the directive into Luxembourg’s law was

Management as permanent and independent functions. Requirements further relate to conflict of interest management, rules of conduct to ensure that management companies act in the best interest of UCITS and their unit holders and best execution of deals done on behalf of UCITS. The obligation for management companies to assess, monitor and periodically review risk management and compliance arrangements, processes and techniques entails the ongoing monitoring of internal risk factors, the performance of stress tests and scenario analyses on all UCITS funds no longer distinguishing between sophisticated and non-sophisticated funds – the documentation of internal risk limits and enhanced due diligence on the quality of assets owned by funds. Marco Zwick




principles for OTC derivatives. I consider this regulation as a “precursor” of UCITS IV risk management principles.

approved by the government on 23 July 2010 and submitted to the Parliament. The text, which replaces the existing law of 20 December 2002 is expected to receive final approval before the end of this year. The legislation is scheduled to go live in July 2011. Until this date, management companies and investment funds can “decide” under which law they wish to set up.

Risk measurement and exposure Key risks

Coping with the risk issues

Whereas I would point out interest rate, credit and currency as key risks for fixed income funds, and market, concentration, sector and country risks as key risks for equity funds, it is fair to state that liquidity risk has become a growing concern for all investment funds following the latest financial crisis. Bearing in mind that the UCITS’ primary objective is the investment in transferable securities and in other liquid financial assets under the principle of risk spreading and that units issued by investment funds are redeemable at the request of the unit holders, liquidity risk management has become a key focus, both from a fund asset and liability perspective. UCITS IV therefore requires management companies to conduct stress tests to assess the UCITS’ liquidity risk under exceptional circumstances. UCITS IV further stresses the need for the liquidity profile of the investments to reflect the redemption policy defined in the fund’s rules and documentation.

When dealing with risks fund managers, fund companies, or self-managed SICAVs must take two main aspects into account: their risk exposure (as disclosed to the investor) and their risk policy. Once these are defined, they must understand the relevant risks factors and monitor their exposures adequately. The regulator foresees in this respect the implementation of a “Risk Management Process“, including a governance risk, risk measurement, risk limits and risk reporting. The most critical aspect, besides the identification of the relevant risk factors, is sufficient data and proxies. UCITS IV emphasizes that the adequate management of the risks also implies competent resources within the management company (at least as to the interpretation of risk measurement results, if the actual measurement is outsourced) and a sound escalation procedure in case of excessive or insufficient risk taking. The existing CSSF Circular (CSSF 07/308) has anticipated much of these requirements, however the industry will have to increase its efforts on all these risks provisions, in particular regarding Liquidity Risk assessment.

UCITS making a more extensive use of financial derivative instruments traded over-the-counter are likely to face valuation risk in relation to these instruments. The obligation to ensure a fair and transparent valuation of these instruments and to subject these valuations to an adequate, accurate and independent assessment and challenge, where necessary, is part of an efficient risk management process that is

Photo (Olivier Carré): © PricewaterhouseCoopers S.à.r.l-Photographer : Blitz agency Photo (Marco Zwick): crédit = Schroeders




not new under UCITS IV, but was already required under UCITS III. Cost Benefits analysis If the possibilities to undertake structural changes, as offered under UCITS IV (eg, management company passport, fund mergers), aim at ultimately reducing costs for investors, fund promoters and management companies, additional costs may well result from the organisational requirements stemming from the formalized rules of conduct and risk management processes. I estimate that these costs will, however, not outweigh the real benefit granted to unit holders in terms of measurement, management and disclosure of risks. Adequate investor protection remains a key feature for successfully distributing UCITS inside and outside Europe.

Liquidity risk The crisis has proved that many financial instruments were not as liquid as they were meant to be, in particular ABS (Asset-Backed Security, whose value and income payments derive from and are collateralized by specified underlying assets.). This liquidity risk may also lead to credit and counterparty risks. The UCITS funds have well managed the crisis, with only very few UCITS funds obliged to temporarily suspend their NAV. Yet, the new market paradigm needs to be taken into account, especially since the UCITS fund is required by Law to remain “open-ended“ at any stage, i.e. allowing for share redemption at every NAV date. Hence, under UCITS IV, asset managers will have to assess their “active“ and “passive“ liquidity risk. From an active, i.e. asset portfolio point of view, risk managers will have to define the indicators of liquidity they wish to follow, in order clearly to document the nature of their assets as well as the liquidity degree (illiquid, liquid and highly liquid) of their investments. On the passive (or shareholder flows) side the assessment is more difficult. The extensive and opaque nature of most distribution network in Europe makes a “modeling“ of redemption flows based on shareholder behaviors almost impossible.



The implications

CSSF’s seal

UCITS IV implies changes with regard to the calculation of global exposure of UCITS, reinforces the need for risk managers to assess portfolio leverage and increases transparency by enhancing the level of disclosure required for risk measures such as VaR and level of leverage. The Committee of European Securities Regulators has defined the methodology for computing the Synthetic Risk and Reward Indicator which should be included in Key Information Documents going forward. These are examples of new

In August 2007 the CSSF issued a circular (CSSF 07/308) outlining rules of conduct to be adopted by UCITS with respect to the use of a method for the management of financial risk, as well as the use of derivative financial instruments. The text already incorporated a range of principles recommended by the CESR, which means that the country was already very well positioned on these aspects. However, the circular does not address the new flagship risk during the turmoil: liquidity risk, emerging from the difficulty of selling an asset. Both the



elements which Luxembourg funds and management companies are currently considering to prepare for the adoption of UCITS IV. Based on the fact that Luxembourg management companies have adopted internal risk management structures in the past and now need to align these with the additional regulatory requirements and in consideration of the substantial work achieved to date by the various players in the fund industry, I am optimistic that the Luxembourg fund industry will be ready to comply with the risk management obligations set under UCITS IV.

liquidity risk and the tightened provisions on counterparty risks take a new dimension since the crisis has shown the potential problems they might lead to. It is more than probable that a new CSSF circular will address these issues. The opportunities The new risk provisions will affect the entire EU funds industry. And have a significant impact on UCITS too. UCITS products are international and are for instance widely distributed in Asia and South America. Furthermore, these provisions are highly important for the supervisory authorities of these regions, which retain a certain confidence in these products. It is all about defending a brand. We must therefore explain this regulation to our clients (i.e. foreign regulators, investors and distributors), while highlighting the importance of risk management and help the industry to succeed in strengthening the “Luxembourg“ UCITS brand. Hence, these considerations can strengthen the UCITS branding and continue to make this product a success. In that context Luxembourg is the most exposed, because Luxembourg UCITS funds are mostly distributed to the rest of Europe (cross-border) and the world. Thanks to its technical (operational) and intellectual competencies Luxembourg can continue to be the distribution hub for UCITS asset managers worldwide.

//// Investor information //// The third principle in UCITS IV predicates a clear and concise information for investors. The European Commission is clear on this: retail investors should receive clear, easily understandable and relevant information when they consider investing in UCITS. The simplified prospectus (introduced in 2001) has proved to be an additional source of unnecessary costs for the industry and is a document of a very limited use to investors. This document will be replaced by the Key Information Document (KID) concept, a 2-pages document giving key facts to investors in a clear and understandable manner. It is deemed to be a precontractual document, assisting them in making an informed investment decision. Among the contents, the most discussed one is the socalled ‘Synthetic Risk and Reward Indicator’. The directive requires is a risk-performance view expressed in a single numeric figure on a scale from 1 to 7. The legislator wants the customers to be able to compare the risk/performance profiles of a UCITS. Hence it is a significant challenge for the industry to implement the whole set of procedures, indicators and measures to fulfil the legislator’s requests as well as to educate their distribution partners. Olivier Carré










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5 indexes to keep art in good hands Can art lovers make return on their favorite masterpieces, whatever their budget and aesthetics knowledge? Last September Luxembourg for Finance and Deloitte Luxembourg co-held a conference at Mudam on Art as an Investment. The guest-speaker was Michael Moses, the co-creator of the Mei Moses Fine Art Index, an indicator that describes the historical financial performance of the major auction art market throughout the world. “Art is an investment like any others: it might not necessarily be unaffordable!”, explained the professor from the Stern School of Business (New York University). And, “when you are trying to understand an asset class, most people use an index to do so. With the S&P, for example, rather than having to look at the value of every single company, the index gives you a synopsis”, Moses continued.

The birth of an indexes family Hence, together with Mei Jianping, Michael Moses launched a first art indicator, the Mei Moses Fine Art Index in 2001. Based on a proprietary database, the index collects more than 13,000 purchase and sale price pairs for objects that have been sold at public auction more than once over the past 15 years. The initial objective of its founders was to study the historical performance of art as an investment and asset class. In the meanwhile four other indexes have been created to complete

the family. The five now reflect art value on five individual collecting categories: old masters and 19th century, impressionist and modern, American before 1950, post war and contemporary and Latin American. The methodology was designed upon the approach of three economists, Karl Case, Robert Schiller, and Allan Weiss, who developed a real estate index in an attempt to understand pricing trends on the residential real estate market. The set of indicators they developed the Standard & Poor’s Case-Shiller Home Price Indices collects information on repeat sales of single-family homes and compare these same home transactions over the time. “Essentially, art is exactly the same as residential real estate in that it is a heterogeneous item: one has to use a repeat sale methodology”, Moses stated. Concretely the Mei Moses Fine Art Index and database just collects information on objects that have been sold more than once at public auction. “The only place you get transparent prices is the auction market, Moses said. In financial markets, you also need an apple to apples comparison. So it had to be using the same article that had been sold more than once at auctions. That way, we would get a purchase price at the first sale at auction and a sale price at the second sale at auction…”

A performance indicator From the investors’ point of view this observation allows then the calculation of investment returns as well as the creation of an index featuring all these different returns over the time. Furthermore, in order to measure the relative performance of an art object, these indexes are compared amongst others to equities, government bonds, gold, cash, real estate. Return, risk and correlation among the assets, over many time periods and holding periods can be analyzed in detail. “Over the last five and ten year periods art has significantly outperformed equities, Moses commented. However for almost all these time periods art has higher volatility and lower liquidity than most other financial assets”. Hence according to the economist, art may play a role in portfolio diversification as it is low-correlated with other assets. But surprisingly, the better returns are achieved in the lower price category, he admitted. Therefore: no need to buy the most expensive masterpieces! Furthermore, Moses gave the audience another wise recommendation: “Buy what you can afford, but more specifically buy what you like: it may not be liquid, so you may have to live with it!” Marc Auxenfants



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...etc The EU rebuilds its financial supervisory architecture Last September the European Parliament approved a series of legislative proposals from the EU Commission aiming to implement a European system of supervision. The commission said the aim of “these enhanced cooperative arrangements“was sustainably to reinforce financial stability throughout the EU, ensure that basic technical rules were applied and enforced consistently, identify risks in the system at an early stage, and be able to act together more effectively in emergency situations and in resolving disagreements among supervisors. The new financial supervisory architecture will include a European Systemic Risk Board (ESRB) and a European System of Financial Supervisors (ESFS).

© EC Audiovisual Service


The step follows the recommendations of an experts group chaired by Jacques de Larosière a former Governor of the Banque de France and President of the Londonbased European Bank for Reconstruction and Development to strengthen the European supervision process based on the failures in financial supervision experienced during the financial crisis. The European Systemic Risk Board (ESRB) will be composed of heads of the European Central Bank, national central banks, European Supervisory Authorities and national supervisors. It will monitor and assess risks to the stability of the financial system as a whole on a macro-prudential supervision level. It will also address recommendations and warnings to Member States (including the national supervisors) and to the European Supervisory Authorities. At a micro-prudential supervision level, the European System of Financial Supervisors (ESFS) will include the national supervisors and three new European Supervisory Authorities for the banking, securities, and insurance and occupational pensions sectors. The three existing Committees for the banking, securities, and insurance and occupational pensions sectors will be replaced by a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a European Securities and Markets Authority (ESMA). The new authority bodies will take over all of the functions of these committees. They will also receive extra competencies, such as developing proposals for technical standards, leading to better regulation principles; resolving cases of disagreement between national supervisors, where legislation requires them to co-operate or to agree; contributing to


ensuring consistent application of technical Community rules (including through peer reviews); and a coordination role in emergency situations. The European Securities and Markets Authority will exercise direct supervisory powers for Credit Rating Agencies. Marc Auxenfants


“I developed a passion for monetary theory”  (Pierre Werner (1913-2002) © Photo Centre Pierre Werner

Macro- and microprudential views


Born on 29 December 1913, Werner studied Law at the University of Paris and graduated in economics and finance. He later held several ministerial offices including those of Defense, Finances, Justice, Foreign Affairs and Prime Minister (1959-1974 and 1979-1984). In 1969, the six member states of the European Community agreed on a plan for the creation of a European economic and monetary union. At that time Prime Minister and Minister for Finances, Pierre Werner chaired the working group in charge of preparing the process of a European Monetary System. The Werner group submitted its final report in October 1970, setting

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out three-stages of a monetary union to be completed within a ten-year period. The plan finally started in 1990 following the Delors Report, on the European Monetary Union.

The document suggests capital and disclosure requirements on funds on a panEU basis as well as provisions covering

Last September the Pierre Werner Institute and the Bridge Forum co-held a colloquium together with the European Investment Bank on the 40th anniversary of the Werner Plan. According to Philippe Maystadt, the president of EIB, the Werner report considered that both a European system of central banks (based on the structure of the U.S. Federal Reserve) and a decision center for the economic policy (politically accountable to Parliament) were two essential bodies prevailing to the conduct of the European economic policy. The first would lead the monetary policy and be responsible for the intervention on the exchange markets. The second would exert a “decisive influence“on the economic and fiscal policy of the member states. “We can see that since the Maastricht Treaty and the euro implementation, although we have the first instrument, the second remains only very partially implemented”, Philippe Maystadt stated.

depository arrangements and managers' remuneration. Among the depository requirements, EU and non-EU funds managed by EU managers must have depositories: these must be liable to the fund or to the investors for the loss of any financial instruments held the fund. Furthermore, non-EU managers will be able to apply for a passport from 2015, when fulfilling a number of requirements: one of those is the appointment of an EU legal representative as a point of contact for regulators and others instances within the EU. The agreed text is to be submitted this year to a vote of approval at the European Parliament’s plenary session. If it is still approved in 2010 the Directive will become effective in early 2011 and be implemented in national legislation by early 2013.

Directive Marc Auxenfants

AIFM-The step ahead Last October, the European Union Council of Ministers announced an agreement on a revised version of the Alternative Investment Fund Managers Directive (AIFMD). The draft text of proposals includes new rules for Hedge fund and private equity fund managers and define a new EU passport regime for funds or managers based in third countries.



Companies Voice

Laurent Vanderweyen

“TA is one of the most critical areas for our clients” The recent-appointed Managing Director of J. P. Morgan Bank Luxembourg talks about the company’s strategy and the UCITS IV impacts on fund administrators. What is your mandate as head of J.P. Morgan Bank Luxembourg?

as a focused approach in regards to the Luxembourg product.

J.P. Morgan Bank Luxembourg is in the fortunate position to have some of the best clients in the industry. Our current client base is one of my main priorities, and obviously, we need to continue to exceed our clients’ expectations. In addition to serving large American or British fund managers, J.P. Morgan has the solutions, experience, and language skills to provide a first class service to continental European asset gathers. If I can, with my team, attract this type of profile to J.P. Morgan, then I will have succeeded in an important mandate.

How would you describe J.P. Morgan Bank Luxembourg’s business?

© Photography Julien Becker

How can your previous experience help you achieve your mandate and objectives?


Previously, I worked at a competitor of J.P. Morgan’s, and I have more than 17 years of experience in the Luxembourg marketplace. I think J.P. Morgan Bank Luxembourg’s board of directors was looking for a person with a continental European background who could use this expertise to provide the firm with another point of view about Luxembourg. Luxembourg has the second largest market for funds in the world after the United States, and as such, it has an important place within the strategy of J.P. Morgan Worldwide Securities Services. Our clients are benefitting from the investment capabilities and the intellectual capital of J.P. Morgan, as well


Our business in Luxembourg is primarily focused on fund services. We provide full custody and ancillary services, fund accounting, and transfer agency services. Client service is the backbone of our personalized approach to all clients and in regards to all our products. The fund accounting department produces net asset valuations as well as state of the art tax services for our clients. Finally, J.P. Morgan’s transfer agency, in my view, is an undiscovered gem for many in this marketplace. Until I joined, I was not aware of J.P. Morgan’s transfer agency capabilities, and I am confident that, because of the significant technological investments, this business will only improve. This year transfer agency has successfully integrated the J.P. Morgan Asset Management book of business as well as the growth of our existing client base. Again, transfer agency is one of the most critical areas for our clients because it is where we make an impression with their clients. This service has to be high touch. What are the biggest opportunities for the group in Luxembourg? One of the advantages of Luxembourg funds is the possibility to distribute in many jurisdictions. However, even though funds

Voice Companies

can be sold in different markets, the fund manager still needs to respect the regulations and especially the tax regimes of the individual countries’ investors. In order effectively to support our clients in the growth of their business via cross border EU distribution of funds, a top class cross border tax solution was required. Initially we were focused on the German market requirements but now also include Austria and the European Savings Directive taxation on Savings (EUSD). Our clients need to be confident that their cross-border tax service provider will give top quality service. This means ensuring on-going compliance in relation to the changes in market and investment tax legislation. It means explaining tax legislation in new markets as well as partnering with clients in response to any kinds of tax related developments. How do you think UCITS IV will impact fund administrators? UCITS IV is expected to improve the efficiency of the European investment fund industry, and it will also create new opportunities and challenges for service providers. Even though the fund servicing structure is well established in Luxembourg, administrators are reviewing the proposed regulatory changes under UCITS IV to find ways they can assist the management companies in complying with the new requirements. Currently, fund administrators provide a number of services, throughout the value chain of fund activities that have been delegated by the management company such as admin-

istration, reporting, tax, compliance or risk management. Under UCITS IV legislation there will be new opportunities. For example, master feeder structures should enable managers to rationalise and streamline their fund offerings, and in some cases it may make new product launches more economic. What would be the challenges for service providers? The challenges are, however, taxation and VAT issues at the investor level and governance requirements as well as compliance and risk management at the fund level. UCITS IV offers the possibility for outsourcing of fund administration activities. Fund managers will be reconsidering their current service set-up, with a view to determining the optimal structure to service to their fund range. UCITS IV will mean more consolidation in the fund administration business with even greater levels of standardization and automation in the industry. The key challenges for service providers will be meeting new service requirements at a competitive price. Pan-European service providers will need to be flexible to service asset management groups across Europe, and existing services may be consolidated such as risk management services. In conclusion UCITS IV creates a more competitive market for service providers although each service provider will be able to differentiate themselves through innovative new services.

The funds servant Laurent Vanderweyen is the Managing Director and member of the Board of Directors of J. P. Morgan Bank Luxembourg S.A. (JPMBL). He joined the firm in July 2010 with overall responsibility for J.P. Morgan Worldwide Securities Services (WSS) lines of businesses in Luxembourg. Prior to this, Laurent was managing director for RBC Dexia Investor Services Bank Luxembourg S.A. He was also a member of the Group Executive Committee of the holding company, RBC Dexia Investor Services Limited, headquartered in London, UK. Laurent holds a degree in Business Administration from the University of Liège, Belgium.

Interview by Marc Auxenfants



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...etc Strategy

Dexia restructures

Dexia the French-Belgian group is about to implement a third cost-cutting phase to restructure further and cut 700 to 800 jobs. By 2014 700 to 800 staff are to be axed within the group. In Luxembourg 140 jobs will be suppressed during the period. Dexia BIL now employs 1,994 persons. In 2008 Dexia launched a 600 million euroreduction plan. A 240 million euro-package still remains to be further identified by the end of next year. Last September, the bank posted a net S1 profit of 136 million euros, while net revenues fell 6% and net commissions rose 14%.


Deuba Luxembourg turns 40 Deutsche Bank Luxembourg has recently celebrated its 40-year presence in the Grand Duchy. In August, the company published its 2009 annual results. Last year, the finance institute generated a 129.9 million euro-profit, with an increase of total assets from 65.8 billion euro to 68.4 billion euro. Administrative expenses rose slightly in 2009 to 64.7 million euro, up 2% over 2008. At the end of the financial year, Deutsche Bank Luxembourg had 352 employees.


The bank's activities are based on four divisions: Private Banking, International Loans, Treasury & Global Markets and Corporate Services Division. “All four business divisions of Deutsche Bank Luxembourg contributed to the bank’s success in 2009, “the report said. Last November the institute raised a 2.25 billion euros capital dedicated to “project-related business expansion in the interests of the Group”, the document explained. “This capital increase covered the distribution of free reserves and the dividend payments 'distribute/recapture method' ('Schütt-aus-Hol-zurück-Verfahren') from the 2008 profit totaling roughly 1.25 billion euro. The remaining 1.0 billion euro served as additional cover for the aforementioned credit guarantee. Revaluation reserve calculations and lower capital deductions had a positive effect”.


50 This is the number of years ING has been operating in Luxembourg. Created in 1960, Crédit Européen opened its first agency in 1961 and moved its headquarter to Route d’Esch. From 1963 on the company continued its further expansion throughout the Grand Duchy until its takeover by Banque Bruxelles Lambert (BBL) in 1987. Ten years later (1997) BBL was acquired by ING Groep. The Dutch group specialized in domestic Retail Banking, Private Banking, Commercial Banking, Financial Markets and Life Insurance. The last sector is planned to be split from the rest of ING banking business by the end of the year and to be sold by 2013. “We have become a key challenger on the Luxembourg market. For the 50th anniversary of our bank, we are confident in our ability to achieve the goals we have set for this fiscal year 2010, continuing our development on a market that is considered key by the Group”, ING’s Managing Director Rick Vandenberghe explained. Last August ING


Luxembourg released its S1 2010 results, with a net surplus of 95.597 million euro, in a 10.49%-decrease compared to the previous 106,803 million euros performance achieved on 1st semester 2009. “If 2009 was an excellent year, 2010 proved a less good one”, Vandenberghe admitted. However the progression of our different activities has fulfilled our main objectives”.


9.8 billion That is the capital amount in euros that Deutsche Bank raised in order to buy Postbank’s remaining 70 percent stake and “also support the existing capital base to accommodate regulatory changes and business growth”, Deutsche Bank said. The German Bank intends to offer between 24 euros and 25 euros a share in Deutsche Bank and will issue a total of 308.6 million common shares from authorized capital at a preliminary subscription price of around 31.8 euros a share, the bank said. One of Germany’s largest retail banks with around 14 million domestic customers, Postbank employs 21,000 persons and manages total assets of 242 billion euros. Its Munsbach-based subsidiary in Luxembourg has around 140 employees.


Kneip ties up Co-link

Luxembourg-based Kneip, an independent service provider to the asset management industry, has purchased Co-Link, a Belgian

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company specialized in fund reporting technology and services for investment funds. Bob Kneip, founder and chief executive of Kneip, said: “There is an ever-increasing need for efficient, reliable, and consistent fund documents. By joining forces with CoLink, we offer our clients more expertise, stronger processes, and additional solutions. Together we broaden our service offering and our geographic reach to serve the industry and investors”. The acquisition follows the recent take over of Patrimoine TV, the premier online video producer dedicated to the financial industry. This strategic move “will enable Kneip to bring a new dimension to their existing video production capabilities and provide a web TV platform for their clients”, Kneip detailed.


RBC Dexia is looking for its head…. Since last April RBC Dexia Investor Services has been trying to find a new managing director to replace Laurent Vanderweyen, who took over the head of JP Morgan Bank Luxembourg (see article page 36). Frank Van Hoornweder, the Chief Risk Officer for RBC Dexia has been temporaly acting managing director, Luxembourg since then.. Based in Esch/Alzette RBC Dexia Investor Services is jointly owned by Royal Bank of Canada and Dexia. Its corporate headquarter is in London.


dans le financement de société, a récemment présenté l’évolution de sa situation financière. Son portefeuille de capitaux propres se monte à 358 millions d’euros. Son actif net comprend 204 millions d’investissements cotés (57%), 88 millions d’investissements directs en Private Equity (25%), 44 millions d’investissements en fonds de private equity (12%) et 22 millions de trésorerie, équivalents de trésorerie et autres actifs nets (6%). La valeur estimée de l’action BIP s’élève à EUR 78,32 à fin septembre, indique la société: en hausse de 4,0% sur l’année. Tenant compte du dividende de 1,50 euros payé le 29 mars 2010, la hausse est de 6,0% sur les neuf premiers mois de l’année.


Natixis closes PB branch in Switzerland According to the Swiss daily newspaper Le Temps, Natixis, a French corporate and investment bank, has closed its Swiss private branch in Geneva only two years after its creation. In February 2008, Natixis Asset Management received the agreement from FINMA, the Swiss supervisory authority. The Branch employs two staff. Natixis’ move to Switzerland aimed at strengthening the group's position in the private banking area, in which the French institution is already operating in France, London and in Luxembourg. Natixis Bank has been present in the Grand Duchy since 1989. Its private banking activity employs 103 persons. The group is the result of the merger in November 2006 between Natexis Banque Populaire (Banque Populaire group) and IXIS (Groupe Caisse d'Epargne), which remain its two main shareholders.

BIP 2010 BIP Investment Partners, une société d’investissement indépendante spécialisée



"Un problème sans solution est un problème mal posé" [Albert Einstein]

Profiles Consulting, Intégrateur d'idées, is mainly dedicated to Project Management and Business Requirements Analysis within the financial and banking areas. Our consultants are committed to sharing their knowledge and experience to match client's requirement for high quality and solution oriented services. Profiles Conslting is the European distributor of e-IBS, the leading US Integrated Banking Software developped by Bankers for Bankers.

Profiles Consulting sarl

20, rue de l'industrie - L-8399 Windhof Phone: +352 26 97 63 80

Industries > Jeff Tessler (Clearstream) - 40th anniversary p42 > Islamic funds - Too sluggish to rock the casbah? p44 > Funds etc p46 > Michel Maquil (Stock Exchange) Listing the challenges p48 > Scorpio Partnership - The end of the boutique? p51 > Degroof n'a pas peur des mastodontes p52 > Private Banking etc p54 > Simone Delcourt (CSSF) - A supervisor's overview p56 > Victor Rod (Commissariat aux Assurances) - Challenge covering p58 > Craig Churchill (ILO) - On insurance for low-income persons p60 > Insurance etc p62 > Law etc p63 > Jean-Luc Fisch (Allen & Overy) - H29 redeems p64 > Pascal Espen (Abax Consulting-PKF) gives his SCA tune p66 > Bob Kneip (Kneip) Talks about finance communication p68



Companies Voice

Jeff Tessler

“Our strategy can be considered as a coherent step in Clearstream’s journey” The CEO of Clearstream talks about the past and future challenges of the clearing and settlement institution. “The structural challenge we faced years ago is now eliminated” Clearstream, at that time Cedel, and Euroclear, were established by banks as limitedpurpose companies. Continuous challenges and opportunities and the vision of their creators to expand the value of what were initially just market infrastructures made both companies move over the years beyond their original mandate of settlement into custody and then, for example, into global securities financing and into the investment funds area, expanding their existing network and moving their services into the world of the domestic Central Securities Depositories (CSDs). Each of those developments has reshaped Clearstream to what it is today: a truly global provider of securities services. We are a bit more limited than a global custodian, but in terms of size, scope and capacity we are very much in the image of a global custodian.

“The nighttime was structurally a disadvantage for Clearstream” To setup the automatic daytime bridge between Euroclear and Clearstream five


years ago was among the biggest challenges we have successfully overcome. In the past, if you missed the last exchange of files in the evening, the failure was on your side. This was structural disadvantage for Cedel. At the time, some of the biggest broker-dealers chose to do their business with Euroclear, because they did not want to have those settlements fails. But today, with the daytime bridge, if the trades fail in the evening, they will come through the cycle in the morning. The bridge is, by the way, the best example of interoperability existing between financial institutions.

“The impact of the financial crisis is not fully understood” In 2008 the financial world imploded around us. Indeed, we really saw the benefit of being a market infrastructure, of being very transparent, of having an operating environment with a high level of security. The fact that we are doing business with banks and that we did not have that many broker-dealers in 2008 played quite positively in our favour. Bear Sterns had problems, but they were not our client; Lehman Brothers: not our client; Gold-


man Sachs: not our client. As a result of the financial crisis, Clearstream has actually even come out stronger than it went into it, mainly due to the transparency of our balance sheet and our flexibility to absorb those challenges. We did not have to deal with subprime-related products or mortgage-backed securities on our balance sheet. We have been viewed as a safe haven in these times of financial instability. And we have even seen our business growing. The crisis is maybe over, but I don’t think that we are finished with its financial impacts.

“There are only three solutions in this crisis” The first is that the government buys an institution in trouble then the Central Bank and the government provide the liquidity. The second is the CCP (Central Counterparty) it does reduce the risk but if providers don’t do it right it can also concentrate risk. The third is collateral management the action of taking the right level of collateral. It is a differentiating factor if you can efficiently manage a clients’ collateral or give him the tools to manage it efficiently. And we are one of four global providers of such service …

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ferent pipes into the CSDs of Europe, we believe that the CSDs should build links between themselves and in doing so, provide clients with a single point of access into one CSD, and that CSD has the multiple pipes to the other CSDs. This interoperability is already a reality through Link Up markets a joint venture amongst 10 CSDs to provide for seamless interoperability. Additionally, we are in the process of enhancing our suite of value added services and collateral management functionality. In doing so, Clearstream will be able to provide its clients with a single point of access to multiple markets in Europe. In this process we will reduce costs and complexity for our clients, while providing a level of service which is world class.

“Our core business is mature”

“We are very wellpositioned for the future” Why is the international market so successful? Because basically all the banks have an account at either Clearstream and/or Euroclear. And the bridge makes the international markets operate as one market. You may have two service providers, but whether you are on the Clearstream or on the Euroclear side of the bridge, it doesn’t matter, because you operate in the international market as if it were one. If you look at the CSDs specifically, each of the local markets is very efficient. The way to create pan-European efficiency is not to break everything down and to build something new. It is about making the efficiency of the domestic markets expand across their borders. The interoperative bridge between Euroclear and Clearstream is the shining example of what we need to do in the domestic markets in order to make Europe

just as competitive as the United States. That is why Clearstream is a big believer in interoperability and we are at the forefront of pushing the concept of interoperability at the CSD level.

“A big part of Clearstream 2013 is to move into the cross-border space” 2013 was the original launch date for TARGET2- Securities (T2S). The idea behind our program is to transform our CSD business in Frankfurt and Luxembourg from a purely domestic provider of services into a crossborder provider of value added services. With T2S clients will have a single pipe into the T2S infrastructure for central bank money settlement. The client will still need to connect to the CSDs in each domestic market as T2S covers only delivery versus payment (DVP) settlement services. Instead of the client having to maintain many dif-

Why this strategy? Clearstream’s core business is very big; we manage almost 11 trillion euros in assets under custody. But this business is quite mature. At the moment we also see a significant decline in our net interest income due to the low interest rates. And our traditional banking clients are under pressure and consolidation will continue in the industry. So we really think about making our business model more flexible, more viable. That is why the original business model of eurobonds was expanded into domestic bonds and domestic equities, all in the international space. Now we are moving into the cross-border space in the collateral management and funds management businesses. Our strategy can be considered as a coherent step in Clearstream’s journey from a provider of domestic German and Eurobond services, into one of Europe’s leading suppliers of cross-border custody and value-added services, investment funds and collateral management services. As told to Marc Auxenfants.



Industries Funds


Islamic funds still too sluggish to rock the casbah? Shariah-compliant investment funds need new strategies and business models to tap the market, E&Y says.

If Islamic finance is hip among funds management professionals, beyond the words and forecasts the sector has not gained momentum yet, the latest Ernst & Young Islamic Funds and Investments Report (IFIR) 2010 explains. But, according to Ernst & Young the number of new funds (29) launched in 2009 has been offset by the liquidated number (27). Moreover, the Islamic funds industry remains fragmented with over 70% of managers having under $ 100 million in assets under management. Less than 10% of managed assets excess $ 1 billion.

Four key achievements

Luxembourg (1983): the first Shariah compliant insurance companies ever setup in Europe1

15 sukuks(1) listed on the Luxembourg Stock Exchange (September 2009):

USD 0.58 billion(2) Islamic assets under management:

Source LFF Ernst & Young




Indeed, the report suggests four key achievements, which might help Islamic funds managers to tap the market: a new evaluation of strategies in order to re-stimulate growth; an achievement of scale to ensure long term sustainability; the implementation of flexible business models to help investors adapt their changing preferences. (“Leading fund managers are actively seeking to optimize operational flexibility and market reach in terms of fee structures, geographical distribution and product offerings, the report noted); and finally to rebuild investor trust, an issue considered by the survey as the immediate priority, which includes transparency in cost and revenue structure.


Now the global sukuk (Islamic bond) market, which has been very quiet since 2009 is picking up. The relationship between institutional investors and the sukuk market is close: takaful companies and wealth managers need liquidity in the market and their activity would stimulate more issues. In the non-Islamic markets more specifically the Cayman Islands took the lead in terms of assets under management: “due to its historic ties with the alternative investment fund market and the fact that many Islamic investors are not used to paying tax”, the report commented. However, their authors observe that Islamic funds follow a trend in the conventional market and are turning to on-shore regulated domiciles. “Luxembourg has picked up a lot of this business”, they say. And concretely, the country could leverage a natural advantage in two areas. One is expertise and reputation in product distribution to the mass affluent market through cross-border marketing and to HNWI through private banks. The other is the Grand Duchy’s special focus on the shariah compliant trust structure. According to the survey, the country is being promoted aggressively by the government as the European hub for Islamic funds: “The regulator is recognized as having a highly proactive and flexible attitude towards the launching of funds”. Jamal Afakir, director at ATOZ, confirmed this trend. In an article published in August

Funds Industries

Financial centers across the globe are vying to become ‘domiciles of choice’ for Islamic funds…



Ireland US$ 0.23b

US$ 0.58b




Dubai (UAE)

US$ 2.15b



Luxembourg US$ 0.58b 35

Malaysia US$ 5.1b 184

Cayman Islands US$ 4.63b 63

Saudi Arabia US$ 22.7b

Estimated Islamic AUM (US$b) Estimated Number of Islamic Funds

174 Mauritius US$ 0.12b

*Currently applications for Islamic funds are under review Source:Eurekahedge, Zawya, , Ernst & Young analysis

on the Website www.islamicfinancenews. com (Luxembourg’s Position in the World Financial Industry), the adviser on Islamic tax structures writes that the country benefits from its historically prominent position in investment and Islamic finance structuring.

Luxembourg’s competitive advantages The main reason is the implementation of a series of measures aiming to make the financial center more attractive to Islamic finance. The latest action in date is a circular on tax treatment released last January by the Luxembourg’s national direct tax authorities on Murabaha, a shariah compliant sale, and on Sukuk, both falling under Luxembourg direct tax scheme.


“The circular states that under a Murabahah transaction, profit derived by the Islamic financing party will be recognized for Luxembourg direct tax purposes on a linear basis during all the murabahah payment price deferral period, notwithstanding the effective installment payments, subject to conditions”, Afakir detailed. The same, sukuk are assimilated by the tax administration to conventional finance debt instruments; this Islamic bond product should not be considered as a dividend distribution for Luxembourg tax purposes and hence should not be subject to withholding tax.

Singapore US$ 0.76b 13

tions, especially offshore centers such as the Channel Islands, the Cayman Islands, Bermuda, and the British Virgin Islands. “The fact that EU direct investments made by investments funds located in those jurisdictions would bear significant tax burden upon repatriation of profits should in itself be a key argument to promote Luxembourg as an EU onshore alternative”, he remarks. “More promisingly, Luxembourg’s flexible investment funding, legal and regulatory framework should become a major decision factor for Islamic fund promoters and investors in the coming months”, he foresees.

For the tax adviser at ATOZ; the challenge consists now in informing and educating Islamic finance professionals and investors about the competitive advantage of Luxembourg compared to other jurisdic-



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...etc Promotion

From Hong Kong with NAV ALFI opens an Asia office in Hong Kong. Ms. Ching Yng Choi a former risk manager at MDO Services will head the representative desk. Her role will be principally ambassadorial, raising awareness of Luxembourg as a fund domicile, and further promoting the UCITS brand in Asia, ALFI announced in a press release. The official inauguration of ALFI’s representative office in Hong Kong was on 11 November and Finance Minister Luc Frieden will be there to mark the occasion. The office will cover the whole southeast Asian market, specifically China and countries such as Singapore and Taiwan.


Signina signs up for Luxembourg Swiss group Signina Capital, an independent asset manager specialised on structured funds, is moving its Cayman-domiciled hedge funds, funds of funds and single funds to Luxembourg in response to investor demand. Northern Trust will take over the fund administration for Signina. The move follows a growing trend among hedge funds to redomicile or launch Ucits and non-Ucits funds in onshore jurisdictions within the EU, such as the Grand-Duchy and Ireland. Signina plans to move more of its Cayman funds to Luxembourg.

Apex tops Luxembourg Apex Fund Services, an independent global fund administration business, announced it opened an office in the Grand-Duchy. “Apex


will begin providing administration services from Europe’s largest fund domicile to its growing number of global clients, with 10 UCITS and regulated SIF SICAV“, the company said in a press release. The new Luxembourg office has been appointed as fund administrator for three fund platforms providing fast and cost effective services. Apex’s choice to settle a branch in Luxembourg is not only related to the European passport, the company told, it also bears a psychological dimension: an investment fund domiciled in Luxembourg is perceived as a well regulated, quality product, the firm explained.

Oddo and NGR to joint in Luxembourg France-based Oddo & Cie, a family-owned and independent financial services group, and NGR Consulting launched a joint venture in Luxembourg. The new structure will offer a full range of front and back office services in terms of custody account-keeping and private banking activity support, via a common platform called Oddo Services Luxembourg. Nord Europe Private Bank, Luxembourg, a subsidiary of Crédit Mutuel Nord Europe, will be the first client of the new service provider. Oddo Services Luxembourg will operate the bank’s entire back office. The operation will start on the first quarter of 2011.

Completely Man Man Group, an international alternative investment management business announced the completion of its acquisition of GLG. “GLG’s products, which span a broad range of strategies from equity to global macro, offer both interesting investment opportunities on a standalone basis as well as complementing Man’s existing range Man said in a press release. The merger will create an alternative asset manager with


around 44.6 billion euros in assets under management.


6170 Number of the bill deposited with Luxembourg Parliament by the Minister of Finance on 6 August 2010. The text aims at the implementation of directive 2009/65/EC, or UCITS IV directive, in Luxembourg law. The bill is expected to receive Parliament’s final approval by the end of this year. The legislation is scheduled to come into force in July 2011.


56 Amount in billion euro of transactions in shares/units issued by both the euro area non-money market investment funds (28 billion euro) and money market investment funds (28 billion euro) in August, according to the latest euro area investment statistics released by the European Central Bank. The amount outstanding of shares/ units issued by euro area investment funds other than money market funds rose to EUR 5,428 billion in August 2010, from 5,375 billion euro in July, ECB said. The growth was due almost equally to rises in share/unit prices and to net issues of shares/units. Over the same period, the amount outstanding of shares/units issued by euro area money market funds increased to 1,180 billion euro from 1,143 billion euro.

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Industries Voice

Michel Maquil

Listing the challenges by the president of Luxembourg Stock Exchange’s executive committee. The Luxembourg Stock Exchange is unique among stock exchanges in that our core business is the listing of international securities. In this respect, this year we haven’t lost ground. The number of quotation lines on both our markets is more or less stable at around 44,600. More importantly, the number of new listings has grown significantly, by about 23%, compared to the first nine months of 2009. From the point of view of our standing as an integral part of the financial centre, we put great emphasis on market transparency and the supply of proper information, which are fundamental responsibilities of any exchange. This year saw the continuation and refining of actions that were put into place some years ago, such as our corporate gov-

we have a partnership in place with NYSE Euronext that covers various activities, one of which enables all the securities that are listed in Luxembourg to be traded on their trading platform. At the moment, we are focussed on the corporate bonds segment. Secondly, information collection and dissemination is one area where we have an obvious advantage. In this field, the Luxembourg Stock Exchange and Finesti have done much work on our joint communication platform, This has created an important infrastructure for the Luxembourg financial centre. We also believe that there are opportunities arising from a number of proposed and existing EU directives, such as UCITS IV, and national laws. In this new regulatory environment, operational infrastructures will come to the fore.

“Asset managers have always been extremely cautious and conscious about their information—it is part of their living”. ernance guidelines, our function as an “Officially Appointed Mechanism” for regulated information, and the increase in information for investment funds. However, at least for us in Luxembourg, the traditional business of a stock exchange is undergoing something of a transformation to include a larger range of services for the capital markets and the investment fund industry. We are following a diversification plan that will allow us to leverage our existing resources, meaning the very high number of securities listed, and increase our expertise in other areas. Firstly, there is an opportunity to increase our trading activities and



As you can imagine, 2009 and 2010 were difficult times for stock exchanges. It was doubly so for the Luxembourg Stock Exchange because we knew that a significant number of the bonds that were listed would be coming to maturity and this would mean many de-listings and a subsequent reduction in revenue. At the height of the boom in 2008, there were around 49,500 quotation lines in Luxembourg and by the end of 2009, those dropped to 45,600. As I mentioned, this decrease slowed down this year and we are now in a period of stabilisation. In addition, a positive sign is that issuers and our clients, such as international law offices and financial institutions, have kept loyal to the Luxembourg Stock Exchange. This is as

result of a number of factors such as slightly more favourable conditions in the primary market, but also the result of positive actions that we took with regard to issuers and capital market professionals as well as the general positioning of our business. We were also helped by our diversification plan. Broadly speaking challenges for the Luxembourg Stock Exchange will be the same as for other European exchanges. The past few years has seen a large number of new players. For the foreseeable future there will be the dynamic of competition between regulated exchanges and the new types of trading platforms, such as the multilateral trading platforms or MTFs and dark pools, which enable investors to buy and sell securities away from regulated exchanges. In Luxembourg, there are both types of markets, a regulated market and an MTF, the “Euro MTF”. The Luxembourg Stock Exchange operates both of these. There is also the question of high frequency trading, a practice which enables orders to be passed in milliseconds. Overall, the future for European Exchanges looks reasonably bright as many of changes have meant or will mean benefits for investors, which can only be good for the market as a whole. I see many opportunities for Luxembourg in the projects for financial infrastructures. We are heavily involved in these and I consider that they could be very beneficial for the future activities of the financial centre and increased employment. The Luxembourg Stock Exchange could have a lot of influence in this field. I would like very much to continue working in this direction, while, naturally, at the same time being able to bring the expertise and experience of Finesti and the Luxembourg Stock Exchange to the table. As told to Marc Auxenfants



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Private Banking Industries


The end of the boutique? According to Scorpio Partnership, big financial groups now hold a strong position on the global stage. And the days of small players might be numbered. In August, Scorpio Partnership published its Global Private Banking KPI Benchmark 2010. According to the London-based business consultancy the global wealth industry managed 16.5 trillion dollar in HNW assets at year end 2009. It was of 14.5 trillion dollar the year before.

inflow declined 60 percent at 900 million dollars, the survey showed.

64 percent of the total-or 8.733 trillion dollar-was administrated by the top 10 companies.

Among the 10 top players, two institutions entered the final list: First, Royal Bank of Canada (rank 7) “following an improved level of transparency in its financial reporting for global private banking, “ Scorpio explained. And Swiss private bank Pictet & Cie (rank 10), which made a come back to the top 10 after two years of absence.

Altogether, the top 20 manage 10.451 trillion dollars, which represents 77 percent of the market, up from 9.2 trillion dollars in 2008.

To be in the top 20 ranking by AUM a private bank must now have in excess of 135 billion dollar of assets under fee-based management, the survey shows.

According to the survey, many of the industry key performance indicators still remain in the negative zone, despite the figures showing a healthy. Indeed, the KPI of profitability has for instance “dropped by a median of 35 percent from the previous year’s level, whereas cost vs. income ratios have meanwhile risen by an average 78.2 percent against a 2008 rate of 72.4 percent“, the study stated.

The end of an aura?

In 2009, most banks faced a decline in efficiency, and the industry’s net new money

Therefore, for Catherine Tillotson, JoinManaging Partner at Scorpio Partnership, it is time the fashion to retain the cottage industry perception is laid to rest. “The benchmark data points clearly toward the fact that the industry can, and must, take on the mantle of being the market leader of industrially managing the assets of the world’s wealthiest. Those businesses and professionals that cling on to the past are likely to be marginalised rapidly and the current benchmark data suggests their days are numbered“, she commented. Marc Auxenfants

Furthermore, the results also show that the industry’s image and perception might not fit the reality anymore. Indeed, if the assumption that clients prefer a boutique service is still commonly accepted within

Institution Bank of America

Hence Sebastian Dovey, Joint Managing Partner at Scorpio Partnership, explains why the wealth management engine is still misfiring for many: “On the one hand the asset management machine is working and this is shoring up numbers, he commented. While, for virtually all banks, in terms of attracting new business it has been a case of Net No Money“,

the financial services community, the figures tell that big financial groups now hold strong position on the global stage.

Read more on AuM YE2009 (USD bn)

Share of private banking assets






Morgan Stanley



Wells Fargo



Credit Suisse






Royal Bank of Canada






Deutsche Bank






Top 10




Industries Private Banking

Banque privée

“Les créateurs de patrimoine sont aussi des entrepreneurs“ Pour Patrick Wagenaar, Directeur chez Banque Degroof Luxembourg, la gestion de patrimoine sur mesure reste une activité d’avenir, pour les boutiques notamment.

En voie de disparition les petites institutions de banque privée, comme l’écrit une récente étude de Scorpio Partnership? (voir p51) Les chiffres publiés en août dernier par le consultant anglais en gestion de patrimoine montrent le positionnement accru des grands mastodontes financiers tels Bank of America, UBS et Morgan Stanley, aux premières places mondiales en termes d’actifs sous gestion. Seule la banque Pictet, réussit tant bien que mal à se maintenir dans les dix premiers. Ce qui fait dire aux auteurs du document, que les jours de la boutique seraient peut-être comptés. Une conclusion que M. Wagenaar, le responsable Asset Management, au sein de Banque Degroof Luxembourg, souhaite infirmer: “Il ne faut pas oublier qu’en 2008 de nombreux grands mastodontes n’ont pas toujours fait preuve de transparence et ont donc pris l’eau. Depuis, beaucoup de clients ont quitté ces grands groupes pour trouver refuge dans les petites entités comme la nôtre, “ rappelle-t-il. Créée en 1871 et basée depuis 1987 au Grand-Duché, l’entité belge y compte deux métiers de base: la banque privée (nommée en interne département Asset Management) et la domiciliation des fonds d’investissements. Dans le modèle d’affaires de la banque privée, les gestionnaires sont à la fois chargés de la relation clien-



tèle et de l’administration technique de leur portefeuille. Pour compléter son offre de service, le groupe Asset Management fait appel à l’expertise des autres départements de la banque, principalement celui dédié au patrimoine global privé et industriel du client (Estate Planning), et de la structuration du capital des sociétés (Corporate Structure).

Statut de boutique Concrètement, le premier offre principalement des services dédiés à la succession privée du client, le second étant lui plutôt axé sur la transmission même de l’entreprise (vers les enfants, un tiers, un acquéreur ou via une mise en bourse…). “Nous essayons d’avoir une vision globale du patrimoine privé bancaire et d’entreprise de notre clientèle, “ précise M. Wagenaar. Selon son directeur, Banque Degroof a toujours été une institution privée au sens strict du terme: d’une part, elle appartient toujours à des actionnaires privés encore actifs dans la maison. Ensuite, ses dirigeants sont présents dans ces activités, bénéficient d’une compréhension des métiers et d’une vue plus exactes de leurs départements et personnels. Enfin, la société comprend un portefeuille de clientèle essentiellement individuelle et privée.

Private Banking Industries

Elle revendique ainsi son statut de boutique: “D’une part, nous ne sommes pas un acteur global présent dans toutes les places financières mondiales. Nous ne concentrons en outre notre activité que sur quelques métiers uniquement: la gestion des patrimoines (Wealth Management) et la banque d’investissement. Il ne faut pas oublier que les grands créateurs de patrimoine sont des entrepreneurs, “ note-t-il. Et de rappeler que les segments banque privée des grands groupes mondiaux comptent également en leur sein une petite unité de type boutique dédiée spécifiquement à leurs clients de la catégorie UHNWI et HNWI. Aussi, M. Wagenaar reste assez positif quant au futur de la boutique au Luxembourg et plus généralement dans le monde. “Il est clair que nous faisons face à un très grand changement depuis quelques années en termes de distance: la très grande clientèle ne va plus s’adresser à une banque de la Place mais reviendra plutôt sur ses bases locales, prévoit-il. Cependant, elle souhaitera toujours diversifier son patrimoine et ne pas mettre tous ses avoirs dans la même banque ni dans le même environnement fiscal. Ces grands patrimoines mettent donc une partie de leur argent dans leur propre pays, comme à l’étranger et veulent travailler avec des spécialistes qui peuvent très vite réagir.“

Plus réactive que les mastodontes Le profil de la clientèle a lui aussi changé: “Il y a effectivement une grande évolution de celle-ci, naguère plus de masse vers des niveaux plus haut de gamme, “ confirme M. Wagenaar. Aussi, pour garder ou capter celle-ci les institutions de la Place doivent relever un double défi. En termes de formation tout d’abord: pour le directeur de Banque Degroof, la qualité des gestionnaires et de leurs connaissances techniques est un atout pour le pays. Néanmoins, la plupart d’entre eux viennent des métiers de détail; il est donc important d’insister sur les formations de base, mais aussi continue. “Je crois que la plupart des banques doivent faire un grand effort pour les former, parce que les questions des clients deviennent de plus en plus sophistiquées et la clientèle elle même est devenue de plus en plus internationale: si le dentiste belge ou français existent encore, beaucoup de clients sont des acteurs globaux, “ commente-t-il.

des machines vont certainement perdre une grande partie de cette clientèle, à qui ils vendent généralement leur produit sur une base de rentabilité, prédit Patrick Wagenaar. Comme nos services sont conçus sur mesure, je crois que nous sommes relativement plus flexibles que ces acteurs globaux,“. L’autre défi de la Place est son rayonnement géographique; la majorité des banques implantées au Luxembourg travaillent pour les pays limitrophes essentiellement, contrairement à des places financières de banque privée comme Londres et Genève qui elles comptent une clientèle plus internationale. “Je crois que la celle-ci recherche un bon service de très haute qualité, dans un environnement extrêmement stable. Cependant Luxembourg doit se rendre plus visible auprès d’elle: il fait non seulement partie intégrante de l’union européenne, mais il offre aussi une très grande stabilité au niveau politique et fiscal. Aussi dans ce domaine, le pays a une carte extrêmement importante à jouer, “ conclut-il confiant. Marc Auxenfants

Dans ce domaine là, les boutiques peuvent aussi tirer leur épingle du jeu face aux grands: “Sur ce point, à mon avis, les gran-



Private Xxxxxxxxxx Banking NEWS

...etc Claus Jørgensen

“Either you can have a niche or you can be a bigger player” The managing director of Nordea Luxembourg talks about doing private banking and why he thinks the segment will consolidate in 2011.

being more competitive in this segment. As a private banking institution, either you can have a niche or you can be a bigger player. But it is obvious that for example the requirements for banks to service clients, the mandatory documentation, the administration, etc. take resources and either you need to grow to keep the costs down or you need to increase your efficiency. But I think that you need to do both. It seems that consolidation will also continue in 2011. Are you on the track to acquire companies? I don’t know whether we are on the track or not, but I think that we have shown in the last years that we are willing to show our commitments as a private banking operation in Luxembourg and we have also shown that we are interested in developing new markets and new services in this environment. And I think we will continue to follow this strategy. Interview by Marc Auxenfants


How does the Nordea group position in terms of private banking? Our group’s international private banking service is managed in Luxembourg. This business is under our responsibility. Luxembourg makes it possible for us to offer a service and value to our high net worth clients on a cross-border basis. I am a strong believer in our expansion into the German market. I also believe that Nordea can bring value to it. We provide German-specific tax reports and that is something valuable for the German clients. We will continue developing that business and I think that we perform very well in this matter. How do you see private banking in 2011 in terms of consolidation? There is a tendency to concentration. We are going to see new markets growing and


Deka buys LBBW…

… and acquires WestLB International ... The takeover of the subsidiary of WestLB AG in Luxembourg by Deka will be effective on 1 January 2011. “The sale marks a further step towards focusing on core competencies and show that the decisions of the European Commission are being consistently implemented”, WestLB AG said in a press release. WestLB International S.A employs 106 persons.

... while UniCredit restructures UniCredit Luxembourg S.A. will sell a part of its private banking activities to DZ Privatbank S.A. The transaction is expected to be closed by the end of 2010, subject to the required corporate and regulatory authorizations, both banks said in a press release. The transfer concerns circa 10,000 clients and the related employees and represents around 22% of customers’ financial assets. UniCredit Luxembourg will further operate in corporate banking, investment banking and treasury. It will focus its private banking activities in Luxembourg on wealth management for HNWI and UHNWI.

Stratégie Landesbank Baden-Württemberg Luxembourg announced the acquisition of

NEPB change de nom

its private banking business by DekaBank Luxembourg. The take over will be effective on 1 January 2011. 40 employees are affected by the deal. They will move to Deka’s premises in Kirchberg by the beginning of next year. Neither Dekabank in Luxembourg nor LBBW in Stuttgart wished to comment on the transaction price and conditions.


Nord Europe Private Bank (NEPB) devient UFG-LFP Private Bank. La redénomination marque le recentrage et le développement de la banque vers le métier de gestion patrimoniale. Depuis le 1er octobre 2010, la Banque appartient pour 60% à la société de gestion d’actifs UFG-LFP filiale du groupe Crédit Mutuel Nord Europe.

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Industries Voice

Simone Delcourt

“Our supervision tasks remain“ “There is always a challenge to protect the reputation of the financial sector, “ the member of the executive board of CSSF says. Will the CSSF be ready on all regulation challenges such as regarding UCITS IV, AIFM, etc.? As a regulator, I think that we will be ready. But at the point we are now speaking we are not yet ready. However we are working a lot on different features, particularly on UCITS

Regulators (CESR) has today. So the shift is not going to take place from one day to the other. But on the other hand there will be more binding requirements that it was until now. If there were in the past more non-binding guidelines, the different authorities will be more implicated into the directive implementation.

Therefore, we can be aware of what is being done by the financial actors, in order to be open to new ideas. Because I fear sometimes in some sense that too much regulation will also block the development of the industry. Hence we have to get a balance between regulation dynamics and investor protection. The latter remains our main objective.

"We have to get a balance between regulation dynamics and investor protection" and more specifically on the notification issue. This is a big challenge for the industry and also for the CSSF. On this issue, we will have finished our work for November. Regarding UCITS IV, in my opinion, our real work will start before the implementation on the European level, which is to be on the 1st July 2011. Regarding all the other challenges, such as how to cope with some of these other issues, I would confirm that we are in the process of recruiting agents particularly for the funds department. We want to be prepared for UCITS IV as well as for AIFM. Therefore, we are looking forwards to having sufficient personnel and technical resources to cope with all these questions. The EU Commission has set up a new European financial supervisory architecture: do you think that national regulators will loose their sovereignty? The ESMA will have much more power as the Committee of European Securities


Therefore, I would not say that we are loosing sovereignty, because our supervision tasks remain, but they will be more harmonized, more guided than they are now. Does it mean less supervisory responsibility for national regulators? No, more responsibility. Because there will be new regulations in the context of reporting. There will be more reporting information that we have to receive from the industry, so we have to organise our structure in order to process this information. Can all these challenges have an impact on CSSF’s credibility and therefore authority? As an authority we have to apply the rules. Therefore we have to be strict on that matter. There is no discussion about that. But what we can do and I always see as a positive point in Luxembourg is that we have a smooth relationship and an exchange of information with the industry.


What are the other major issues CSSF will have to deal with in the future? I think there is always a challenge for an authority like ours to protect the reputation of the financial sector. To be there and to supervise correctly and to see that there is no damage coming up in the financial sector. That is our main mission apart from investor protection. Interview by Marc Auxenfants

Simone Delcourt, Director (CSSF)



Industries VOICE

Victor Rod

“A number of companies will need a larger capital base” The chairman of Commissariat aux Assurances’ executive committee talks about the future challenges the industry and its supervisory body might face in the coming years. QIS5 study We are starting the fifth Quantitative Impact Study QIS5, which is an assessment most companies are expected to participate in. The aim is to implement the principles developed by the directive in assisting companies in the calibration of the standard formula, which will be used to assess their mandatory capital requirements under Solvency II. Run by the European Commission QIS5 is asking the participating companies to show the real figures. The results to be displayed by the 1st quarter of 2011 will show whether or not adjustments have to be made in the draft regulation. Commissioner Barnier stated that the Commission was willing to take the outcome of the study into account and was ready to adapt the calibration criteria if necessary. For my point of view, I am afraid that a number of companies will need a larger capital base; some companies fear that the requirements are too onerous.

EIOPA The new European insurance supervisory body, the European Insurance and Occupational Pensions Authority (EIOPA)


will be put in place by the 1st of January 2011. It will replace the Frankfurt-based Committee of European Insurance and Occupational Pensions (CEIOPS) and will employ a staff of 85 to 90 persons (including the current 23 working at CEIOPS) to be recruited within two years. It will receive new competencies such as releasing binding regulations on the so-called level 3. This was not the case of the actual CEIOPS, which can only submit recommendations.

EIOPA‘s impacts on national supervisory authorities

CEIOPS is an association of supervisors, that is to say a pure trade association. By comparison, EIOPA will be a European authority, with personnel having the status of European civil servants.

When it comes to a critical decision such as requiring a capital increase, and if the different regulators don‘t agree on that, then the new European insurance supervisory body may take a final decision, which will be binding for all. There is therefore a certain limitation of the national authority as, if national supervisors do not come to an agreement, decisions can be overruled in last instance by EIOPA. If national supervisors want to keep a certain power and independence, they will just have to organise themselves to find compromises.

I have been nominated one of two CEIOPS representatives as at the preselection Committee, for the new Chairman and the new Director General. It therefore gives Luxembourg a small chance to play a role in the implementation of this new body. My mandate is expected to run until the end of 2010. This will depend on the speed of the nomination process. After this short-term mission I might remain the Chairman of the Consumer Protection Committee within the new institution.


It is clear that EIOPA will have its word to say in the future when it comes to supervision, specifically regarding cross-border insurance activities. Let's take the example of an insurance company based in France with subsidiaries in most of the other Member States. For the moment, each national supervisory authority is solely competent in its jurisdiction.

However national authorities will now have to deliver aggregated figures on the market they supervise, such as statistics and figures on individual companies especially on those practicing cross-borders activities.

Victor Rod, Chairman, (Commissariat aux Assurances)

Légende: “I can tell you that the collaboration among supervisory authorities was extremely poor, almost inexistent”

On collaboration between supervision authorities The existing structure of the supervision was considered as not being very helpful when it came to solve the financial crisis. The European Parliament came to the conclusion that there should be a European authority taking decision,s more specifically during a crisis, when no agreements can be reached between the national authorities. This was clearly the case in some situations such as the rescue of Fortis and Dexia in Luxembourg: Concerning the insurance side, I can tell you that the collaboration among supervisory authorities was extremely poor, almost inexistent. I

haven‘t received one phone call from my Belgian colleagues. When we heard of the troubles concerning the two major financial conglomerates based in Belgium we immediately called the managers of the insurance branches of both groups and gave them instructions to make sure that the interests of the policy holders of these companies should not be compromised by financial requirements from their troubled headquarters.

FATCA There will be of course an impact on insurance companies dealing with American policyholders inside or outside Luxembourg. I don‘t know how prepared our companies are to fulfill these requirements. I am afraid

that a number of them will prefer not to deal with US citizens at all. Furthermore, beside the policyholders, the American funds held in companies' portfolio will also be affected. At this moment of time we haven‘t yet discussed theses issue with the industry. It is clear that the formalities to observe are very time and money consuming and this might lead to the point that some companies might simply refuse to conclude a contract with an American citizen or institution, or to deal any further with already existing life insurance policy holders. As told to Marc Auxenfants



Industries Voice


Challenges and opportunities in low-income markets Microinsurance, or insurance for low-income persons, is growing at an estimated rate of 30 to 50% per year; yet even with such growth, the majority of the world’s poor remain unprotected. Less than 5% of low-income people in developing countries are using insurance products better to manage risks and smooth their way out of poverty. However, many insurers start betting that microinsurance is a serious alternative to traditional insurance business in Asia, Latin America and Africa. They see the need to invest in specific products for low-income people such as funeral, health or agricultural insurance as they represent a vast market with small but existing liquidity. Plus every year millions of low-income people move up to the lower middle class and can afford conventional products.

Craig Churchill

Copyright © ILO

Adapting to and distributing the market

International Labour Organisation’s Microinsurance Innovation Facility


Microinsurance does not mean repackaging traditional products into ‘mini’ insurance. Insurers cannot just take an existing product, reduce coverage and premium, and assume it works for the poor. Products must be developed from the bottom-up, taking into account the preferences and behav-


iours of the target market. To date, group term life schemes, and particularly credit life, are covering the most lowincome persons and are the most profitable, although the value of these products to the customers is debatable. The strength of these products is their simplicity. They are often compulsory, which reduces anti-selection and marketing costs. However, customers often do not know that they are covered. In addition, the market demands more meaningful products such as composite products and health benefits. Products must be easy to understand, and easy to claim when the insured event occurs. For example, if a life insurance policy requires a death certificate to claim, but the costs of getting the certificate including time away from work, bus fare and bribes add up to half of the sum insured, then it probably is not designed for low income people. The mechanisms for collecting premiums from an unbanked market, and the timing of those premiums for per-

sons with irregular incomes, represent additional challenges. Some insurers make sure their sales campaign falls on the harvest period, while others develop nonlapsable products or adapt the amount and regularity of premium to low-income pockets.

Distributing remains the big challenge Collaborating with distribution partners to reach low-income people is often a necessity. Though microfinance institutions (MFIs) have been the most commonly used distribution channel so far, many exciting projects are experimenting with unconventional options as well, ranging from churches to retailers. A couple of characteristic depict a good distribution partner: its capacity to reach large numbers of poor clients, the existence of regular financial interaction and a trusted relationship with the clients, and adequate systems and staff capacity to support the sales and servicing of the market. Perhaps most importantly, for the dis-

Grant The In ternati onal La Organ bour isation 's Micro Innova in suranc tion Fa e cility w in 200 as esta 8 to fu b li shed rt h er the insuran extens ce to m ion of il li o people ns of lo in the d w-inco me evelop the ove ing wo rall aim rld, wit of redu h vulnera cing th bility to eir risk. W the Bill it h supp and Me ort from linda G the Fac ates Fo ility ma undati kes gra on, throug nts to p hout th rojects e deve are usin lo ping w g micro orld th insuran at ways. F ce in in or more novativ see ww inform e w.ilo.o ation, rg/mic roinsu rance

“The insurance industry is starting to notice the huge untapped microinsurance market at the bottom of the pyramid”. tribution channel to be effective, the persons on the front line need to understand how insurance works, they need to believe that it is an efficient mechanism for managing risks, and they (and their employer) need to benefit from providing insurance. Despite their advantages, community-based organisations often lack the expertise and administrative capacity needed to support the sale and delivery of insurance. This capacity is especially important when distributing more complex products in markets where demand is less developed, because these environments require an active sales strategy. Thus, an ideal distribution channel has the appropriate capacity to sell actively or passively, depending on the product and environment.

Using technology Creating trust Furthermore, reaching economies of scale quickly is essential to making microinsurance sustainable. According to the World Resources Institute, “Technology does two key things that help drive the development of financial services: it cuts costs, and bridges physical distance”. These two issues high operating costs and clients that are spread out and difficult to access represent two of the biggest barriers to microinsurance development. Many insurers are testing how to use communication devices such as point-of-sale terminals or mobile phones to allow customers to enrol and make premium payments remotely, saving both time and money but also to transfer data and manage

better claims. Insurance is essentially a promise, and many people do not believe that insurers will keep their word. To overcome this lack of trust, some insurers are partnering with community groups, cooperatives and even religious organisations that have strong interactions and bonds with the community, to serve as delivery channels. This approach increases the confidence of these organisations’ members that insurance can be trustworthy. Ten years ago, it would have been difficult to imagine that a poor farmer would have access to agricultural insurance and pay the premium when cash was available. The next ten years will undoubtedly bring new and equally unexpected developments with the power to bring the security of microinsurance coverage to those who need it most.



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...etc Results

Robust as a whole, Fragile in parts If the industry 2010 figures shows a solid insurance market despite the crisis, the situation is clearly more nuanced for companies. In September, Commissariat aux Assurances, the Luxembourg insurance regulator, presented its 2009 results. “The recent financial crisis seems to remain a (bad) memory for Luxembourg’s direct insurance sector”, said Victor Rod, the chairman of the CAA’s executive committee. Indeed, according to the insurance regulator, the premium collection rose 52.09% last year, whereas the total balance sheet increased 28.32%. Furthermore, the global life-insurance results climbed of 273.13% last year compared to 2008. During the period non-life insurance figures grew 37.74%. Growth trend Hence, to the light in these results the sector remains solid, the report explained. Also, the 2010 provisional figures seem to confirm the trend, with a premium collection increase of 98% during the first semester of the year compared to S1 2009. And if Victor Rod states that “the vast majority of companies has managed to maintain or even increase the level of coverage of their solvency margins“, two life insurance companies no longer reach the minimum guarantee fund and solvency margin requirements: those firms have been required to implement a recapitalization plan in the short term, the CAA confirmed. “If they fail to comply within the allowed timeframe, the withdrawal of their accreditation will become inevitable, “ the regulator warned. The reinsurance segment also shows


signs of robustness, with a total collected premium increase of 27.29% during 2009. However, the overall figures remain difficult to compare from one year to another, the report explained. In 2008 indeed Swiss Re, a major player in global reinsurance, transferred its global activities to Luxembourg. “Because of its size, the operator's figures greatly influence the total reinsurance results, “ Commissariat aux Assurances admitted.

national supervisory authorities and their day-to-day activities.

Hence, the total balance sheet figures of all insurance and reinsurance companies under the CAA’s supervision in first half of 2009 was 137.44 billion euros. In 2008 it was 104.85 billion euros.

Rudolf Flunger, division Head of In-


“We can’t fight stricter rules, we have to accept them”,

The total staff of the insurance and reinsurance branches grew 13.11% to 4,861 employees in 2009; 3,710 of them are working in direct insurance and 1,151 in reinsurance. These statistics do not include the 7,000 agents and insurance brokers as well as their employees serving in the sector. Luxembourg’s insurance industry comprises 95 direct insurance companies and 251 reinsurance firms.

surance and Specialty at Swiss Re said in a keynote presentation on the future for captives, held during the European 2010 captive forum in Luxembourg. "The insurance industry would struggle if the regulatory burden is too heavy. Captives and other insurers are also experiencing higher capital need and therefore higher costs, with access to capital becoming more difficult”, he asserted. For the Swiss Re director, regulatory requirements will be tougher: the Pillar II and III requirements for solvency may be seen as too onerous, outweigh captive benefits, and lead to an increase in captive running costs.

Among the challenges


In 2010 and 2011 the industry is preparing to face regulation challenges. First with the Solvency II Directive, which comes into effect on 31 December 2012. “Regarding the implementation process on the horizon 2012/2013, the Commissariat did not fail in its primary mission to monitor insurance companies, reinsurance and insurance intermediaries on their solvency”, the report added. However, the industry and its supervisor is preparing to face further challenges in the coming years, such as QIS5 and FATCA. In a interview with FinanceNation (see page 26 and 27), Victor Rod details those and explains what EIOPA will bring to the


192% The percentage increase of Lombard International Assurance’s premium collection during the first half 2010 and compared to same period in 2009. The privat­bancassurance company published a collected premium income of 1.55 billion euro and a total funds under management of 18.1 billion euros, in increase of 39% over H1 2009. The results are considered as the highest ever fourth quarter sales figures by the company.

Xxxxxxxxxx NEWS Law

...etc Results

PwC’s growth return

its people and the communities in which it operates. The new branding, which includes a simplified logo consisting of the initials “pwc” in lower-case type, is designed to be easier to use and better suited for digital applications.


Baker & McKenzie to step in Luxembourg PwC Luxembourg released its results for the financial year ended 30 June 2010, with a turnover of 233 million euro and revenues up 3,1% compared to last year. The Audit and Other Assurance Services activity represents 60% of the overall revenue, the service company said; Tax remained stable at 21% and Advisory slightly decreased to 19%. “For 2011, we plan a growth of 5%, explained Didier Mouget, Managing Partner of the firm. To achieve this, we will strengthen our investments in research and the creation of innovative solutions in our services. We will also increase the promotion of Luxembourg abroad, through business trips in countries with high development potential such as China”.

The international law firm has established a presence in the Grand Duchy, with the integration of the local law practice Findling Collin Fessmann into its worlwide network. Jean-Francois Findling, Raphaël Collin and Laurent Fessmann, the former co-founders of the eponymous company will co-head the new structure with a team of 20 attorneys and tax advisors, specializing in Corporate and M&A, Banking, Funds and Tax advice. Founded in Chicago in 1949 by Russell Baker and John McKenzie, Baker & McKenzie employs more than 3,750 lawyers in 67 offices in 39 different countries.



PwC changes logo

Last October the professional services network adopted a new global visual identity and branding, in order it said to strengthen and modernize its image among its clients,

30 June 2010, up by 6.5% from the EUR 103.8 million net revenues for the prior year. Among the service lines, the audit practice delivered grew 8.7%, whereas advisory services rose 5.10% and tax services (3.4%). “We are encouraged by the strong return to growth in the second half of the year said Alain Kinsch, country managing partner of Ernst & Young, Luxembourg. While this is broadly in line with the economic recovery that we have started to see in Luxembourg and abroad, it clearly reflects the positive results we are seeing from the ambitious market development plan our leadership team launched back in January, as well as from the leverage provided by our integration within the EMEIA (Europe, Middle East, India and Africa) network”.


20 This is the number of years Marks & Clerk LLP, the international firm of patent and trade mark attorneys has been operating in Luxembourg. Set up in 1991 by J. J. Pierre Weyland, Marks & Clerk Luxembourg comprises more than 20 partners and staff. The firm has a total of 19 offices worldwide UK (11 locations), Luxembourg, France, Canada, China (Beijing and Shanghai), Hong Kong, Malaysia, and Singapore.

E&Y in line with recovery

Ernst & Young announced total net revenues for the Luxembourg practice of EUR 110.6 million for the financial year ended



Industries Voice


The end of 1929 holding companies

Jean-Luc Fisch

Tax Partner, Allen & Overy Luxembourg


In 2006, following a fouryear preliminary review in cooperation with the Grand Duchy of Luxembourg, the European Commission decided that the Luxembourg holding company regime, introduced by the law of 31 July 1929, as amended and completed (the 1929 Holding Company Regime), was violating EU treaty state aid rules. Consequently, on 22 December 2006, the Luxembourg Parliament adopted a law abolishing the 1929 Holding Company Regime. However, for a transitory period ending on 31 December 2010, existing 1929 holding companies were allowed to benefit from the 1929 Holding Company Regime, provided the shares of the company were not transferred. This transitory period is now drawing near an end, and it is time to decide upon the fate of the remaining 1929 holding companies. Existing 1929 holding companies will become fully taxable companies as of 1 January 2011, subject to corporation taxes and to wealth tax, unless they are liquidated or adopt another tax regime.


The SPF in a nutshell The family estate management company (société de gestion de patrimoine familial, SPF) created by the law of 11 May 2007, was destined to offer an alternative regime to the 1929 holding company. Indeed, it offers most of the advantages of the 1929 holding company, while being fully compliant with EU regulations. An SPF must be a limited liability company (S.A., S.à r.l., SCA or COOPSA), whose object is limited to the acquisition, holding, disposal and management of financial assets, with the exclusion of any commercial activity. The key difference from the 1929 holding company is the SPF’s limited pool of investors, which must be individuals or intermediary vehicles acting exclusively for the management of the private wealth of an individual or of a group of individuals. The SPF may further not be involved in the management of the companies in which it holds participations.

The SPF is exempt from Luxembourg corporation taxes and wealth tax. It is merely subject to an annual subscription tax, at a rate of 0.25%, with a minimum of EUR 100 and maximum of EUR 125,000 per annum. It is however excluded from the scope of Luxembourg double tax treaties and from the EU parent-subsidiary directive. Also, an SPF which, during a given financial year, derives at least 5% of dividends stemming from participations held in non resident private companies which are not subject to tax in their respective jurisdictions at a level comparable to the one applicable in Luxembourg, are excluded from the SPF tax regime for that financial year. The conversion of a 1929 holding company into an SPF before the end of the transitory period is not a taxable event as such. The conversion from a 1929 holding company into a SPF requires that an extraordinary general meeting of shareholders is held before a Luxembourg notary to bring the articles in line with the requirements of the law of 11 May 2007.

Law Industries

In substance, (i) all references to the law of 1929 must be deleted, (ii) the articles must explicitly state that the company is governed by the law of 11 May 2007 on family estate management companies and (iii) the corporate object clause must be adapted to be in line with the provisions of the law of 11 May 2007.

Soparfi Fully taxable holding companies are commonly designated as Soparfi, a term which appeared in 1990, and stands for “société de participations financières” (financial participation company). This denomination originated from practitioners and is not embedded in any legal text. A Soparfi is an ordinary limited taxable company with a specific corporate object, limited to the holding of participations and ancillary activities. As a fully taxable commercial company, a Soparfi is subject to corporate income tax and municipal business tax on its commercial activities. In addition, a Soparfi is also subject to net wealth tax at a

rate of 0.5% assessed on the estimated realisation value of its assets on the wealth tax assessment date. Dividends and capital gains derived from qualifying shareholdings are, however, tax exempt under the Luxembourg participation exemption and no wealth tax is due on such shareholdings. The conversion of the 1929 holding company into a fully taxable company will be automatic as of 1 January 2011, i.e., it will be subject to corporation taxes and to wealth tax and be attributed a tax number as of 1 January 2010. However, it is nevertheless recommended to proceed to a change of the articles of association, in particular to (i) delete all references to the law of 1929 in the articles and eventually also in the name of the company, and (ii) to adapt and broaden the corporate objectives clause. Indeed, 1929 holding companies generally have had a limited corporate scope, being banned from carrying out certain activities (e.g., certain finance activities, holding of real estate).

What happens if no action is taken by the year end? A 1929 holding company which is not liquidated or does not adopt another tax regime will become a fully taxable company as of 1 January 2011, subject to corporation taxes and to wealth tax. In particular, wealth tax, which is levied at a rate of 0.5% of the company’s net assets, may become an immediate issue if the company has important cash reserves or other taxable assets and no action has been taken before the end of the transitory period as the first wealth tax assessment date for former 1929 holding companies will also be on 1 January 2011. The conversion into a Soparfi may also trigger adverse income tax issues, if, for example, investments are in assets which do not qualify under the participation exemption and no efficient financing structures are in place. However, a careful restructuring may mitigate or even avoid tax exposure in Luxembourg.



Industries VOICE


A significant effort but a burden decrease The Luxembourg Standard Chart of Accounts will be applicable as of 1st January 2011: while implementing the SCA represents a significant effort for business undertakings, it might lead to a decrease in the administrative burden for them.

pascal espen

Partner Tax & Accounting, Abax Consulting PKF


The law of December 19th, 2002 (the Accounting Law) set out the obligation to use of a standard chart of accounts. This Standard Chart of Accounts (SCA) has been adopted through the Grand Ducal Regulation of June 10th, 2009. The SCA will be applicable for the accounting years starting after the 31st December 2010 and will be enforceable to corporations and partnerships, Luxembourg branches of foreign undertakings, Economic Interest Groupings as well as to individual business owners. Certain organisations are not within the scope of the SCA, i.e. not-for-profit organisations, foundations, credit institutions, insurance or financial holding companies.

Even if implementing the SCA represents a significant effort for business undertakings, a decrease of the administrative burden is to be expected for those undertakings. Luxembourg authorities such as STATEC or the tax authorities will be able, without requesting the financial information directly from the business undertakings, to collect data for statistical and administrative purposes by means of the trial balances filed in accordance with the SCA. Ultimately the SCA constitutes the backbone for the Luxembourg Central Balance Sheet Data Office (“Centrale des bilans”), considered as an important tool to decrease the administrative burden for the government.

One of the drivers for implementing the SCA is the need to ensure consistency and comparability of financial information across business undertakings in Luxembourg.

The Grand Ducal Regulation does not include a clear description of the content of the different accounts, leaving this to the practitioners. The SCA mainly introduces a


standardisation of numbering, heading and wording of the chart of accounts. Furthermore, no mandatory mapping exists between the accounts of the SCA and the templates of the balance sheet and of the profit and loss account set out in article 34 and 46 of the Accounting Law, even if a natural mapping can be observed between the SCA and the above mentioned templates. Interestingly the use of the SCA is not mandatory for daily bookkeeping purposes. The business undertakings are free to either keep their existing chart of accounts within their accounting system or to implement the SCA. In case the SCA is not used in the accounting system, a conversion table has to be developed, in order to reconcile the internal chart of accounts and the SCA. This mainly is to allow the mandatory

Accounting Industries

filing of the trial balance in accordance with the SCA at the end of the accounting year. For example the subsidiary of a large multinational corporation will most probably choose to use its group internal chart of accounts and develop a reconciliation tool between their chart and the SCA in order to meet their legal requirement in Luxembourg. Undertakings deciding to use the SCA within their accounting system for daily bookkeeping purposes will have carefully to plan the migration of the accounting data from their previous chart of accounts to the SCA. This migration might only imply an adaptation of their chart of accounts for certain undertakings, whereas for others the migration will be accompanied by a change in accounting software. It is recommended that the migration be finalised before

the beginning of the first accounting year the SCA will apply. As already mentioned earlier the SCA will be applicable for the accounting years starting after the 31st December 2010. The first filings with the trade register of trial balances in accordance with the SCA will happen in early 2012. As it is not clear for the moment in which format and by which means (hopefully by electronic transmission) those trial balances will be filed, there will certainly be adaptations is the trade register filing procedures.

gence between the SCA and the chart of accounts for notfor-profit organisations have to be contemplated. Finally, for those business undertakings that have not yet started their migration to the SCA, or set-up a mapping between their internal chart of accounts and the SCA, only few weeks are left to implement a solution.

The Grand Ducal Regulation of June 10th, 2009 has set out a first version of the SCA, nevertheless there will be changes to the SCA in the forthcoming months and years. The first experiences with the SCA will lead to adaptations and improvements of the SCA. Possible conver-



Bob Kneip

“It is all about making the processes around information more standardized, more efficient” The director of Kneip Communication talks about financial communication issues and tells why efficiency remains the investment asset managers value the most.

How would you define your core activities?

What does it concretely mean in terms of business?

First let’s put into the context who we are and what we are doing: our ambition is to be the most caring asset management support people in the world.

This is where asset managers rely on us. Concretely, if something changes in the life of a fund, its investors should know about it. For instance, they should be informed about events through corporate actions. Funds prices may vary—again they should be informed. Therefore, we have to make sure that the updated information reaches the investor. Regarding the implementation of UCITS IV and the changes these might bring, we help our clients to set up their Key Investor Information Documents and manage them so that their funds can be transparent and comparable.

Our primary objective is to bring our clients peace of mind. These are the asset managers of the investment funds themselves. They ask us to help them dealing with certain communication issues they have, and pay us for that service. We do not sell data and we do not sell documents. The buzz words that we hear all over the place today are about increasing efficiency, putting new regulation in place, providing trust and transparency. These are recommendations from a political level, which are simple to talk about, but more challenging to make happen.


Another direction we decided to follow was video, so that investors could actually see the people managing their assets and working on their retirement or sav-


ings plan. This brings a new dimension to investor information. What we have set up over the 17 last years is all about making all the processes around information more standardized, more efficient. Who is then responsible for the content of the information transmitted to the final user? It is always the asset manager, specifically the fund or management company’s board of the directors. It may delegate all or part of that function to a fund administrator, custodian, distributor or service provider, but this doesn’t take away its ultimate responsibility.

What impacts have the crisis had on your business and more generally on financial communication? We were also hit by the crisis. As we are standing side-by-side next to our clients, if they are hit and their revenues decline, our company is also directly affected. As far as our clients’ situations are concerned, we are directly impacted. Therefore we have had to find new ways to make our processes more efficient, and also to find alternatives to make their way of communicating more efficient. Hence we had to adapt our business model: whereas in the past it was mainly paper-based, it slowly shifted to a mix of paper and electronic information. This doesn’t mean that paper has disappeared; it is just a mix between the both with a rise in electronic communication. On which basis do assets managers pay your services? We always work out with the client the unit that best suits his needs. In terms of listing, it is per published line. In terms of ads or corporate actions, it is per corporate action being processed. In terms of financial reports, it is per document, per language, and so on… Regarding the KID,

the principle remains. Fees are calculated on a per-document and per-language basis. Therefore we always try to adapt so that the asset manager knows how we will proceed before he starts the co-operation. All in all, we charge a fee per performed task. Has the crisis had an impact on the content of financial information and on its credibility? I think that asset managers have always been extremely cautious and conscious about their information—it is part of their living. I think we give them the opportunity to achieve more consistency and to provide more in-depth information through all information channels. We enable our clients to achieve this with greater efficiency in speed and cost. We want to make sure that our investors get the best information for the best price, because every cent that a fund pays is a cent that the investor doesn’t see. Another important area that we also look at is the relevance of the information you feed, with an objective of maximizing coverage and efficiency by carefully publishing the most relevant information, in the most relevant places, in the most relevant form.

What are your future challenges? We have to make sure that we listen to our clients and that we understand where their pain points are and how we relieve these. This is our challenge, and our clients directly determine this challenge. We have to be where our customers, where the decision makers, and where the distribution channels are. As we speak, we are opening a client relationship office in Frankfurt, so that we can be next to our customers there. We are also setting up an office in Hong Kong, to support distribution for our clients in Asia. How can we pretend to care about our customers, without being where they are? Therefore it is our strategic decision to also be part of industry bodies, namely ALFI, BAFIN in Germany EFAMA, … in order to make sure that we get the information as quickly as possible to serve our clients at best. Interview by Marc Auxenfants



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Nation News > André Prüm (Université du Luxembourg) - on financial education and financial sector p72 > Business, etc p74 > Nation News p76 > Paul Helminger (Luxembourg City) - A city hosting a financial center is managed differently p78 > Paul Chambers (ATOZ) fait une mise au point sur l'optimisation fiscale p80



André Prüm

“A financially-educated population can reduce the distance from the financial sector”

What are the main financial academic specificities of Luxembourg?

The Dean Faculty of Law, Economics and Finance of the University of Luxembourg talks about the financial education challenges the country, its University and its financial centre might face.



I think that Luxembourg bears some features that make its academic environment specific: such for instance as its openness to multiple cultures, its international resident population and its integration into the Greater Region. This latter includes many top universities as well as large student and workforce populations. It also provides a natural source of students and workers as well as multiple cultures and languages. It is also very conducive to business of a cross-border nature. Those features make Luxembourg extremely compatible with a fast globalising world. Moreover the activities of its university benefits from a strong support from the financial centre. So does the Luxembourg School of Finance (LSF) - the Finance Department of the Faculty of Law, Economics, and Finance (FDEF) - with much potential for long-term and short-term synergies.

VOICE Business

More concretely, how does the financial centre differentiate from its other competitors in terms of content and expertise? Among the main competitive attributes of our financial centre, I see first its high level of expertise at scale in financial services with a cross-border vocation. The full array of investment products and its capabilities in offering highly complex products and investment strategies is also a relevant differentiation factor. So is also its number of specialised areas and niches, with critical mass products (Islamic finance, micro-finance, fund of funds products, some hedge funds, and structured products). The constructive relationships between the actors of the financial centre and the supervisory authority also lead to efficient supervision. Can the model be exported? Every financial centre has its own position and differentiation, its own strengths and weaknesses. Our job at the University is to support the Luxembourg financial centre in its requirements for education, and also to support its diversification and future growth, as well as to enhance the quality, knowledge and expertise of its people based on its particular profile. What still needs to be improved? There is always scope for improvement and development. We are focussing on some areas such as the creation of a portfolio of university-level “executive” courses to become an important source of life-long learning. These will be particularly important for some groups, such as those over 35 years old or in middle management, a segment, which has perhaps been neglected in terms of training and further education. We are however getting closer to the financial centre. Indeed there is a tremendous scope for partnership at different levels, for instance on joint research projects with the private sector. To date, we have conducted many projects with public institutions, such as the Banque

Centrale du Luxembourg. We would like to do more with the private sector and we are currently in discussions with the associations, including ALFI and ABBL, around a joint research effort on depository liability. This has tremendous potential in view of current discussions around UCITS IV. Which main challenges do Luxembourg and its financial centre face in terms of finance education and literacy? The prime differentiator of the Luxembourg financial centre is its know-how: keeping its acquired know-how ahead of the curve is the main challenge for the financial centre. This is the responsibility of players in the market. And our role is to support this prime objective. The financial centre of Luxembourg is unquestionably moving up the value chain, with the objectives to remain competitive from a cost perspective, to offer better products and services, and to increase scale in an environment of complexity. Finance education and education around specialised, high-value-added areas are keys to sustaining this desirable trend. I have to say that there is an absolutely huge level of know-how and expertise in this market. The challenge is to keep moving it forward. You never actually maintain the status quo, you either move ahead, or you fall behind.

financial centre into the future. Last but not least, we think that a financially educated population can serve to reduce the distance between Luxembourg’s population and its financial sector. What conclusion do you draw from the co-operation between LSF and the Financial Market? I will draw two main conclusions. First: I believe that we have advanced tremendously in our relations with the financial centre, in the level of awareness of the LSF. The appointment of Julian Presber as coordinator of relations with the financial centre has of course been instrumental in driving this. But it must be said that we are continuously struck by the tremendous amount of goodwill towards the LSF and the University in the financial centre. Second: a lot of work still remains to foster a greater degree of integration between the university and the financial centre. Rome wasn’t built overnight, and there is still more hard work ahead, but it is all going in the right direction. The University is growing and the Faculty is growing too. We had this month our largest intake of full-time students ever in the Master of Banking and Finance: 28. We are in the process of hiring new full-time professors. We have enhanced both the quantity and quality of our links with the financial centre. Therefore, we are confident in the future. Interview by Marc Auxenfants

Financial literacy of the population should also be improved: this is a subject under discussion in every country since the financial crisis. A study by a professor in the US has concluded that the main reason for the high number of homeowners having their mortgages foreclosed was a lack of financial literacy, not unemployment, not over-selling by the mortgage sellers, not anything else. On that point, we have an additional stake in Luxembourg: one, which is not linked to the population as investors, but to the population as potential finance students at the university and most importantly as potential leaders, managers, specialists, and thinkers carrying our



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...etc Education

Private Bankers in Luxembourg have moved their two former reconciliation platforms into Stematch, an application developed by the Swiss-based software provider of service-oriented architecture solutions for transactions straight through processing (STP).

120,000 That is the number of persons who attended a course at IFBL, the Institute for Banking Training in Luxembourg, since its creation 20 years ago. Founded on 30 September 1990, the institute has provided training courses on finance and banking issues. 15 persons are permanently working at IFBL and 200 trainers provide their expertise.

Course LSF goes Islamic Luxembourg School of Finance announced the organisation of an Islamic Finance Course together with INCEIF (International Centre for Education in Islamic Finance), a centre for graduate studies in Islamic Finance based in Kuala Lumpur (Malaysia). “The four separate two-day modules will review the underlying principles and theory of Islamic Finance, and examine the applied practice of Islamic Finance in the international business and regulatory environment of banking and capital markets today“, LSF said. The programme will be taught in English by faculty from INCEIF. It will be held from 10 to 19 January 2011 in LSF’s premises in Luxembourg-Kirchberg.


“More than a transformation. It was a disruption.” Yves Baguet stated, in an interview with ITNation ( The CIO of Clearstream sums up the 40 year-existence of the International central securities depository from the IT point of view. “We moved from a small and feeling-orientated IT engineering to a set of industrialized, big scaled and open business-based technologies.

Danes’ plans

Sterci reconciles KBL KBL and Sterci SA announced the release of Stematch, a solution dedicated to securities and cash reconciliation. The European

Solution “Les études démontrent que 30% des banques luxembourgeoises se préparent à changer de système dans les cinq prochaines années”, 

Fabrizio Romano (Country Manager, Finnova Luxembourg).

L’éditeur suisse de logiciels bancaires qui a récemment inauguré son bureau luxembourgeois propose une solution bancaire intégrée et modulaire.





© Photography Raoul Somers


tial, ”Troels P. Jensen, Simcorp's Managing Director Benelux (photo), explained. Simcorp’s challenge in Luxembourg is to convince local fund managers to replace their platforms with Simcorp Dimension. It aims to build a portfolio of 45 to 50 new fund admins on the segment. Both Nomura and Nordea already agreed to implement the application. The group says it holds 15% of a Luxembourg market controlled by IGEFI’s MultiFonds and SunGard’s GP3.

Simcorp, the Danish software and knowhow provider to financial sectors, which opened an office in Luxembourg last July, took its strategic step. “The Luxembourg market is extremely important for our group and represents a strong growth poten-


Real Estate

Results Property Partners published its T3 office market figures. Does the professional real estate market show the first signs of recovery? Despite the less favourable European economic situation and an upturn that appeared much more moderate than expected, the Luxembourg office market recorded a slight improvement with 30,000-sqm let during the Q2 2010 period and 19,500-sqm

Nation Luc Frieden Xxxxxxxxxx

let during Q3, the real estate consultant wrote in its latest publication. “This matches the 50,000-sqm let since the beginning of the year”, explained Vincent Bechet, the Senior Partner and Managing Director of Property Partners. According to the report, the take-up distribution per activity shows a preeminence of the business services sector (29% of the total), followed by European institutions (22%), the banking industry contributing this time to only 20% of the whole. Hence, the vacancy rate remains at its current level of 7,85%. “The sublease trend, which is increasing in the Luxembourg real estate landscape, contributes in part to the current indicator level”, the report detailed. According to Bechet, the expected yield in the city is about 6% and 6.75% in the periphery. “Investors are looking for long term tenants (more than five years), and are demanding as far as the quality of buildings in sustainable development and energy savings are concerned”, he wrote. “But promoters remain reticent and have been waiting for 15 months now before starting building any new large-scale risky projects”. For the forthcoming years Property Partners foresees a low growth of 3%, with a moderate evolution of prices and wages. The real estate consultant predicts no significant decline in unemployment rates, which should persist at 6% this year. “Public finances will be placed among the good news with a lower than anticipated deterioration”, Bechet added. “Should the international financial environment keep up, the European economies in general and Luxembourg in particular could see the end of the tunnel. Otherwise, we will have to get used to a high long-term office vacancy rate”, he concluded.

Comment “The office real estate market is still in a precarious position“, Jean-Pierre Lequeux, Managing Director of DTZ Luxembourg about the latest Luxembourg Q3 2010 figures. According to DTZ, the office activity show a flat market.

Office investment Market remains slow In its recent city report H1 2010, BNP Paribas Real Estate confirmed the low activity of Luxembourg’s office investment market, with a total invested volume of around 30 million euro, a figure reflecting the very slow start of the segment during the 1st semester 2010: “This represents only 14% of the total volume realized over the same period last year”, the report commented. Among the main reasons, according to the real estate agent, one being the absence of German investors, who traditionally are a major players group in Luxembourg. “The German funds remain in a state of collapse, with eleven funds still temporarily closed”, BNP Paribas Real Estate Luxembourg explained. Since January 2010, Luxembourgish investors dominate the segment with 80% of the investment market, together with Dutch investors (20%). For Martin

Heyse, the managing director of the real estate agent, the market is also suffering from a lack of product diversity, while at the same time the products available in the market lack appeal. Indeed, the Offices segment, which doesn’t attract investors anymore, now ranks in last place for the first time, with 16% of the total volume invested, behind the Land sector (25%). Commerce leads (59%) with a total of 17.5 million euros invested.

The re-appropriation

Share of capital invested in real estate in Luxembourg Nationality of investors Germany






The Netherlands Luxembourg NA

2008 2009 H1 2010 38%















Source: BNP Paribas Real Estate




...etc ABBL

Rebuilding trust and dialogue ABBL should be the voice of the financial sector and rebuild citizens’ trust in Banks, Ernst Wilhelm Contzen the new appointed chairman of the Association of Banks and Bankers Luxembourg said last July in a speech to the press. “Our industry is still facing tremendous public debate in the aftermath of the disruptions caused by the financial crisis, particularly in regard to compensation principles, banking taxation and both the current and future regulatory landscape." Contzen, who is also the Managing Director of Deutsche Bank, detailed ABBL’s main priorities: first to restore confidence, amongst the public; second, further dialogue should also be further implemented with the different groups and stakeholders of the financial market place, in order to show a united front: “It is necessary to get to know each other and to get to know the ABBL in order to recognize that the ABBL can be the 'think tank' and the 'melting pot' for ideas, problems and for the future of the financial place”. Building trust also promotes the foundation of a good reputation: “We must have zero tolerance for reputational risk. Damage to our reputation equals damage to Luxembourg as a financial centre. We cannot afford negative press coverage, he asserted”.

come tax rate of 21.84 percent includes a 4 percent employment fund contribution. Additionally, a municipal business tax is levied on all business establishments located in Luxembourg. The rate for the city of Luxembourg is 6.75 percent but it varies depending on the location”, the study detailed. Luxembourg remains one of the last countries in the world to collect tax on capital applicable only to collectivities. “Room for corporate tax increase appears to be non-existent without a loss of competitiveness”, KMPG said.


20 This is the position achieved by Luxembourg in the latest Global Competitiveness ranking by the World Economic Forum. According to the Global Competitiveness Report 2010-2011, the country gained one position this year compared to previous results. Switzerland tops the overall ranking, followed by Sweden and Singapore. The United States falls two places to fourth position. The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organisations) in the countries covered by the Report.

les 72% des répondants affirmant utiliser régulièrement les informations du STATEC, la moitié peut fournir l'ordre de grandeur des principaux indicateurs économiques et sociaux. “Les taux de chômage et d'inflation sont encore assez bien connus, mais seulement 15% des répondants connaissent avec suffisamment de précision le seuil de pauvreté par exemple, “ indique l'étude. Le 20 octobre 2010 avait été déclaré journée mondiale de la statistique par les Nations Unies; le choix de la date jouant sur le chiffre 20102010. La discipline a comme objectif premier de fournir les données objectives pour la bonne gouvernance de la société et de l'économie d'un pays. Elle demande selon les initiateurs de l'événement une approche rigoureuse et une expertise éminente de la part des acteurs. Luxembourg economic indicators and forecasts Indicator




GDP (%)




Inflation (%)








Source: Statec



28.59 This is the corporate tax rate in percentage that a company established in Luxembourg city pays in 2010, according to the latest KPMG Corporate and Indirect Tax Rate Survey 2010. “The corporate in-

Une culture des données encore insuffisante Selon une enquête récente du service central de la statistique et des études économiques (STATEC) auprès des utilisateurs réguliers de ses données, les connaissances de l'actualité économique et sociale pourraient être améliorées. Ainsi, parmi



Nation VOICE

Paul Helminger

“We had to change our mind“ Luxembourg city’s mayor talks about the links between the capital and the financial centre.

Is a city hosting a financial centre managed differently? I think it is in some ways managed differently, because the dynamics of the city do change. And these are quite specific in our particular context. The emergence of the financial centre brought then a new dynamic to the city. With the presence of an entirely new brand of population, faster thinking, faster moving, with different and higher expectations on life. This new group of individuals is much more mobile, more creative and more innovative. So I do really believe that this evolution required a change in the way to manage the city. How did the city’s management follow this significant speeding up and adapt to these new trends? I think that we ourselves had to abandon our mentality of an authority, as if we were simply exercising part of the sovereignty of the country: we were authorizing, we were regulating. We had to change our mind to that of a public service provider. This required also a shift in our daily procedures. How does a mayor mentally adapt to the expectations and needs of both the financial industry and its employees? We are definitely not involved in the technicality of the financial centre. However what we realized was that we basically have: first


over 10% of our population that changes every year; second: an increasing number of our citizens who are not nationals (65% of the city residents are non-Luxembourgers); third: a population, which doubles every day, with 100.000 people coming to the city… These three factors forced us to re-think the way we operate. Do the specific businesses of Luxembourg’s financial centre (funds administration, private banking, insurance…) have a particular impact on the way to administrate the city? No. I think that managing a city covers a more general level. Fund managers or private bankers have one thing in common: they are very often recruited out of locations that are by nature much bigger and more cosmopolitan than Luxembourg City. Our challenge is then to make sure that they do feel here at home. It is a question of attractiveness, more than of business specificity. What can the City offer to clients of these financial institutions? Do your city planning and decisions schemes take these wealthy private banking customers into consideration? The city has to function properly: people cannot come here in a dirty and non-ruled city. We take care of that. Unfortunately we cannot handle all the requests and concerns we receive from the financial sector.


How high is the financial centre’s contribution to the city budget? A third of the City revenues emanates from commercial taxes, i.e. the taxes on local business. Roughly about 80% of the commercial taxes collected in the country come from the City of Luxembourg. And the vast majority of this, let’s say 80% comes from the financial centre itself. In accordance to the national law, we keep directly about 35% of that and the rest is re-distributed among all the local authorities. And inversely, what part of your expenditures is dedicated to the financial centre? That is much more difficult to say. The fact that we became the economic centre of the country means that 40% of the jobs in the land are located in the City. We pay some 70 million euro a year for our own public transportation system. 2/3 of this amount is due to commuters arriving to the city and the transportation to their workplace. Again, we wouldn’t certainly have the culture budget amount we have if there were no financial centre.

How do the current financial sector’s difficulties affect your city? Luxembourg’s financial sector and community originated from a kind of sovereignty niche, with fiscal advantages and banking privacy. This niche has gradually been wiped out in the processes of harmonization. But I think that the financial centre has successfully moved since a couple of years to a niche of business quality. The fund business has very little to do with fiscal advantages, but more with a modern legislation. Private Banking offers also a very competent and sophisticated wealth

management service. Therefore I am pretty confident on that. We are also following new paths such as intellectual property, microfinance and Islamic finance. And the sector is still moving fast onto adaptation and diversification. How does the financial sector lobby you and your administration?

in order to set up schemes to move their staff into, within and out of the city using a maximum of public transport and soft mobility is really quite remarkable. You do perceive that they wish to be part of a well functioning city. Interview by Marc Auxenfants

The issues they regularly raise with us are on quality of life or housing and mobility. Mobility is one of the most pressing issues. The co-operation we get from the big banks and the European institutions



Nation VOICE


“L’optimisation fiscale est un droit“ La récession économique, ainsi que les difficultés budgétaires qui s’ensuivirent, ont mis en exergue la question de la juste répartition du fardeau fiscal. C’est dans ce contexte particulier que la plupart des pays du G20 se sont donnés comme objectif de combattre la fraude fiscale, l’abus de droit et même l’optimisation fiscale. Pourtant, sous condition d’être bien encadrée, l’optimisation fiscale contribue à retrouver au niveau fiscal un équilibre entre liberté, croissance et justice. L’optimisation fiscale est difficile à enserrer dans une définition. Globalement, il s’agit de tout moyen licite mis en œuvre par un contribuable pour réduire sa charge fiscale. Elle se distingue de la fraude fiscale qui est un détournement illégal par le contribuable d’un système fiscal par le biais d’une simulation ou d’autres manœuvres illicites pour réduire sa charge fiscale.

Abus de droit

Paul Chambers

Partner Corporate Tax-ATOZ


À mi-chemin entre la fraude et l’optimisation fiscale se trouve la théorie de l’abus de droit. Beaucoup plus difficile, l’abus de droit se veut une limite à l’optimisation fiscale: un contribuable ne peut échapper à ses obligations fiscales ni les diminuer par un abus de forme ou l’utilisation de constructions de droit civil. Le Professeur Maurice Cozian en donne la définition suivante: “L’abus de droit est le châtiment des surdoués de la fiscalité. Bien évidemment, ils ne violent aucune prescription


de la loi et se distinguent en cela des vulgaires fraudeurs qui par exemple dissimulent une partie de leurs bénéfices ou déduisent des charges qu’ils n’ont pas supportées. L’abus de droit est un péché non contre la lettre mais contre l’esprit de la loi. C’est également un péché de juriste; l’abus de droit est une manipulation des mécanismes juridiques là où la loi laisse la place à plusieurs voies pour obtenir un même résultat; l’abus de droit, c’est l’abus des choix juridiques.“1 Alors que la fraude et l’abus de droit sont hautement condamnables, l’optimisation fiscale l’est beaucoup moins dans la mesure où elle constitue le corollaire d’un Etat de droit. En effet, tout système fiscal doit se conformer au principe fondamental de tout Etat de droit, à savoir l’égalité des citoyens devant la loi. Or un tel principe d’égalité est intimement lié à la légalité de l’impôt. En effet, seul un prélèvement fiscal déterminé exclusivement sur base d’une

loi, c’est-à-dire sur base d’une norme générale, abstraite et impersonnelle, peut écarter l’arbitraire administratif. Cette caractéristique fondamentale du droit fiscal ouvre cependant la porte à des interprétations et structurations permettant au contribuable habile de réduire sa charge fiscale

Optimisation fiscale Bien que l’optimisation fiscale trouve ses origines dans la volonté naturelle des contribuables de réduire au maximum leurs charges fiscales, elle peut avoir un effet bénéfique pour les contribuables en général. En effet, l’optimisation fiscale permet de mettre à jour les faiblesses des systèmes fiscaux et de les améliorer. Au niveau même de la conception des lois, elle oblige le législateur à être clair et précis dans ses objectifs. En d’autres termes, l’optimisation fiscale est la sanction naturelle de lois mal faites ou incomplètes.


Dispositions anti-abus En pratique, des lois bien faites ne sont pas la seule réponse à l’optimisation fiscale. Face à la baisse de leurs recettes fiscales, les Etats cherchent à la contrer par le biais de mesures antiabus. Au sein de ces dispositions anti-abus, on distingue les mesures d’ordre général (comme la théorie de l’abus de droit) et les mesures ponctuelles (à savoir des règles anti-abus qui font référence à des transactions ou situations particulières). Ces mesures présentent cependant elles-mêmes des limites: dans un contexte européen, comme l’a rappelé la Cour de Justice des Communautés Européennes à plusieurs reprises, les mesures anti-abus introduites par les États membres de l’Union européenne en matière de fiscalité directe ne peuvent, en principe, enfreindre les libertés fondamentales, notamment la liberté d’établissement. Des restrictions à ces libertés ne sont autorisées que dans la mesure où elles respectent certaines conditions régulièrement reprécisées par la Cour. Dans la mesure où l’optimisation fiscale est un phénomène qui sera toujours difficile à combattre, il est peut être opportun que les autorités fiscales entament un dialogue plus constructif avec leurs contribuables. Ce dialogue pourrait aboutir à une sécurité juridique plus renforcée au niveau du contribuable, à conditions que celui-ci adopte un comportement plus “responsable“. 1

Maurice Cozian, Les grands principes de la fiscalité de l’entreprise,1999, p.163





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financenation #01 - novembre 2010  

FinanceNation Magazine Luxembourg novembre 2010 GRAND ENTRETIEN Luc Frieden, Minister of Finance