Between wars and trade tensions, it’s no secret that we’re navigating through geopolitical risks and uncertain times, said Nasir Zubairi, CEO of the Luxembourg House of Financial Technology (Lhoft), the moderator of a panel at the Nexus 2025 conference on 17 June. How exposed is Luxembourg’s financial sector?

Luxembourg has always been “in favour of multilateralism,” said the director general of the Financial Sector Supervisory Commission, Claude Marx. The grand duchy does not depend solely on US players, but rather a wide variety, which makes it more resilient and able to navigate through these troubled times. In addition, Luxembourg’s stability and triple-A rating are positive features for financial actors and investors.

Geopolitical turmoil does indeed have an impact on the asset management industry, said Serge Weyland, CEO of the Association of the Luxembourg Fund Industry (Alfi), offering a fund management perspective. Luxembourg, however, is fortunate to be “very diversified.” The second-largest fund centre in the world, some €7.5trn of assets are domiciled in Luxembourg, he pointed out. Roughly two-thirds are public assets; one-third are private assets. The funds industry is “well-diversified” and the grand duchy’s bilateral relationships with other countries are also helpful. This means that Luxembourg does not have a “geographical dependency” on any one region.

For the country’s banking sector, represented by the chair of the Luxembourg Bankers’ Association (ABBL) Yves Stein, this uncertainty translates to a steepening of the yield curve and also illustrates the need to invest in technology in order to fit for the future. Cybersecurity, he added, will be a fundamental challenge.

This uncertainty is also seen in the insurance sector, where risk modelling will change and costs are on the rise, noted Thierry Flamand, director general at the Commissariat aux Assurances. In the face of crises like the covid-19 pandemic, inflation and higher interest rates, the insurance sector will need to focus on how to stay competitive, added Marc Hengen, CEO of the Luxembourg Association of Insurers and Reinsurers (Aca).

Is volatility cause for caution or a potential opportunity in the private equity industry? For Stéphane Pesch, CEO of the Luxembourg Private Equity & Venture Capital Association (LPEA), 2025 is a year of cautious optimism. There are indeed opportunities--particularly when it comes to the energy transition, digitalisation, artificial intelligence and defence--but there are also risks like fragmentation. Luxembourg, he said, proposes a “robust and resilient” European ecosystem.

AI: adoption is increasing, but room for improvement

The use of artificial intelligence is on the rise in the financial sector as well, noted panellists. A survey of 461 financial institutions conducted by the CSSF and the Central Bank of Luxembourg, for instance, found that the adoption of AI is increasing, but there’s still “room for improvement.” Just over one-quarter of respondents (28%) use AI technology in production or in development and a further 22% are experimenting or planning to experiment with AI technology in the next 12 months. That, however, brings us just to 50%, noted Marx. Roughly six out of ten respondents (58%) allow unrestricted access to public GenAI tools like ChatGPT or Gemini.

Use cases, for the moment, focus mostly on back-office tasks, such as chatbots or note-taking. It hasn’t yet progressed to the fund side, though take-up for applications such as augmented portfolio management is expected in the near future. The aim of the CSSF, added Marx, is to try to guide the market in using the new technology in a safe way through publications and workshops. Adoption of new tech will help Luxembourg to keep its edge.

Stein, for his part, has seen an increase in projects nearing live production. He advocates for secure, sovereign sandboxes to allow new tech to be tested. Trustworthiness has evolved, he said, but there are still gaps. Data quality, security and governance will be key.

There may be barriers on the data side, noted Weyland, but Luxembourg is fortunate with regards to infrastructure like Luxprovide or the AI Factory, which will allow companies to implement safe solutions and “play around” in a safe environment. AI, for instance, can be used to automate due diligence or play a role in decentralised projects.

In the insurance sector, AI can facilitate the claims handling process, help with fraud detection and process large quantities of text, said Hengen. That being said, its use must always be done with adequate frameworks and controls.

And with an increasing amount of regulation, added Flamang, technology is the only way to reduce the burden of regulation and maintain the industry’s productivity.

A need to focus on quality, not quantity

When it comes to Mica (the Markets in Cryptoassets regulation), the CSSF is seeing “a lot of demand. But it’s taking the same approach as it has for other sectors, said Marx. The goal is not to be the first country to have a “massive amount” of cryptoasset service providers (Casps), but rather to focus on quality, sustainability and client protection--all whilst remaining nimble.

Keeping Luxembourg attractive

And to ensure that the grand duchy’s financial services sector does not become “obsolete” because of AI, constant innovation is required, said Stein. Costs are going up and we need to find productivity gains and become more efficient. As the industry evolves, business models need to be constantly reinvented. Luxembourg doesn’t just want to just be a place for back-office tasks; it wants to move up the value chain, get creative and attract talent.

Luxembourg is indeed still an attractive place, said Pesch, thanks in part to dialogue with the government, supervisors and financial associations.

For Hengen, it’s important to reach out--and look more than 100km away from the grand duchy’s borders--and convince people to Luxembourg.

We’re often self-critical, concluded Marx, but we have lots of good things here in Luxembourg. We need to recognise these good aspects and make them known abroad in order to attract talent to the grand duchy.