The ABBL, in cooperation with the Haut Comité de la place financière, conducted a study to explore the functions prone to be mutualised in the financial services sector. It refers to situations where financial institutions, together with other partners such as technology providers, law firms, consulting companies, pool their resources to set up a hub that could provide its services that were previously internal business functions. Examples might be regulation and compliance, payments and cybersecurity.
Data collected from banks and credit institutions in Luxembourg in Autumn 2019 revealed that 93% of respondents believe that mutualisation of certain functions between institutions is valuable for the financial services community, and the most attractive areas are:
- Compliance related functions such as regulatory and prudential reporting (82%),
- Know Your Customer (KYC) / Anti-Money Laundering (AML)
- Combating Financing of Terrorism (CFT) (71%)
- Standardisation of KYC documents exchange (67%)
KYC / AML / CFT, regulatory and prudential reporting, and customer on-boarding are seen as the most promising mutualisation areas that could constitute international competitive advantages of Luxembourg.
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Mutualisation of functions in the financial sector
Data collected in Autumn 2019
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Factors with a positive impact on mutualisation projects
Financial institutions in Luxembourg are aware of several national and foreign mutualisation initiatives that either already exist, or are emerging in the marketplace. According to the survey, technological (85%) and economic (78%) macro-factors have an overall positive impact on bankers’ decision-making process related to joining mutualisation projects. Among hindrances are socio-demographic (17%), regulatory (15%) and political (11) developments.
Professional associations (63%), software / IT vendors (52%), and consultants (52%) have an positive impact on existing and potential engagement of financial institutions in mutualisation projects in Luxembourg.
Meanwhile, headquarters, group members (18%) and competitors (15%) and law firms (15%) are seen by some respondents as obstacles with regard to mutualisation initiatives.
Obstacles with regard to mutualisation initiatives
Headquarters, group members (18%) and competitors (15%) and law firms (15%) are seen by some respondents as obstacles with regard to mutualisation initiatives.
Concerning internal factors, Luxembourg bankers refer to IT infrastructure (67%) and project partners (59%) as positive drivers of engagement in mutualisation projects in finance. However, budget and project costs (26%), availability of competent and skilled staff (22%), and the limitations of market size are seen as major barriers for mutualisation initiatives.
Confidentiality and sensitivity of data in the processing of mutualisation, as well as organisational culture and resistance to change, are among other potential issues on the road to mutualisation.
Looking ahead
Financial services providers suggest that professional associations in Luxembourg should:
- Federate, coordinate and facilitate initiatives of its members with regard to mutualisation
- Select, drive, promote and support such projects
- Define standards and codes of conduct
- Lobby for mutualisation projects vis-à-vis regulators.
According to financial services providers, regulators and government agencies in Luxembourg should:
- Enable, promote and support mutualisation initiatives contributing to the development of national competitive advantages
- Put in place a regulatory framework and taxation regime that would create opportunities for mutualisation of functions in finance
- Consider being centres of documentation and stakeholders of such initiatives