What currents should financial sector firms monitor in 2025? “This goes beyond the financial industry, but clearly it’s the geopolitical situation and what that means on the macro-economic front,” , CEO of Luxembourg for Finance, an economic development agency, said in an interview. In addition to the new European Commission that is ramping up, “we have a new US administration coming in at the beginning of the year.”

“If only half of the things that were discussed and mentioned on the campaign trail come to be, that creates a lot of things that we need to consider in terms of their impact on the global economy, on trade, on inflation,” stated Théobald. Naturally Luxembourg’s financial sector will be “impacted both positively and negatively by the global macro-economic situation”.

European competitiveness

“The second Trump term has a very strong focus on the competitiveness of the US economy. In Europe we had the Draghi and Letta” reports on boosting the European single market, released last year, “which focused on the competitiveness of the EU.” The Draghi and Letta reports are “not necessarily light reading, in the sense that it’s quite a sobering diagnosis that they make. So there is a risk that the massive challenge that we have” leads to policymakers collectively acting like “rabbits staring at headlights, basically.”

“But if you look at it its core, there are many small and incremental steps we can take that can be transformational, because we shouldn’t be overly pessimistic. There’s lots of discussions around the [view that the] Capital Markets Union never came to fruition. That’s not entirely true. There’re many things that have happened [with the CMU]. They’ve maybe not had the overall impact that we had hoped for. But we have things like Eltifs [European long-term investment funds]. We have the STS, standardised, transparent and simplified securitisations. Again, it’s not gone far enough, but it’s not like we don’t have a CMU,” Théobald said.

“From a Luxembourg perspective, we actually live the CMU on a day-to-day basis. We are a cross-border financial centre in every sense of the word. We have a securitisation framework that is highly advanced and flexible. We have a hub for Ucits [retail investment] funds. We have private assets, private equity. We have all kinds of sources of funding, the right toolbox and the expertise here. And we do it on a cross-border basis, importantly. So we don’t need to reinvent the wheel. We don’t need to reinvent new products; Ucits works. You know, it’s a more of a question of, what are the barriers currently? Why do we have market fragmentation? And there, again, instead of getting lost in institutional discussions--you know how difficult it is to address institutional questions in the European Union--why do we even get sidetracked with that, if we have the tools in place? Yes, we can have more regulatory and supervisory convergence. Yes, we can ensure that regulation is much more coherent, and especially that there’s no national gold plating in implementing [European rules] whether it’s for reasons of investor protection or whatever the reason that is being put forward.”

“The reality is that at national level, often countries implement [policies based] much more from a domestic perspective and not as much focused on what it means from a cross-border perspective,” according to Théobald. “There, Luxembourg has a different voice, maybe a unique voice, but it’s something that is in the interest of the EU. You have many markets that are not Germany, France, Italy or Spain. You have many markets in Europe that are small and mid-sized and that rely on cross-border financial services much more [than bigger member states]. The risk that I see in wanting to address the competitiveness of the EU--I’m speaking from the financial [services] perspective, because that’s what I know best--is that we end up with EU navel gazing. So we kind of get bogged down in focusing on ourselves and also forget that there’s a much larger world outside of us, including on our doorsteps, with the UK, and that we need to remain connected with global markets.”

“We tend to look at EU competitiveness [around the question of] how do we increase access to funding within the EU for European companies, improve access to products for European citizens. That’s all fine, and we should continue to work on that. But we also need to make sure that we have access to global capital and that we are attractive as a market for firms that come from outside the EU, because that’s also part of the overall growth and competitiveness of the market. So I think we need to [ask if] our ambition is to have a larger share in a eventually smaller cake? Or do we want to grow the cake for everyone? And that means connecting with other markets globally, looking at what other markets are doing, initiatives that they are taking in terms of competitiveness. So focus on our competitors, rather than protecting ourselves from outside competitors.”

What other markets does he have in mind? A place like Singapore? “Yes, Singapore is a good example.” They have a “very results-driven” regulatory approach. “We tend to look at regulation in Europe from a tick-the-boxes” manner. “But we’re not necessarily always looking at what the end result is and what is the objective that we actually” are targeting. In Singapore, there is a “very, very strong approach in bringing the community together to work on collective solutions with the regulator. I’m thinking of areas like the tokenisation of investment funds.”

Private markets

Théobald observed that these days: “Companies stay private much longer. That’s something we are seeing globally.” In the same vein, “investors, whether it’s for portfolio diversification reasons, looking for yield” are increasingly “investing in private assets.”

“So it means also a much more diversified fund centre in Luxembourg. But it also means that new service providers are coming to Luxembourg.”

This article was written for the 2025 print edition of the released on 7 February 2025. .

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