Mutualization initiative for Luxembourg’s financial services

By Cara Browne and Hind El Gaidi, acting as representatives of the LPEA within the Steering Committee of the Future Foundations Programme as published in Insight Out #27

Introduction

Here in Luxembourg, Private market and Alternative Investment players are looking for strategic solutions to allow for more agile operational models when they face increasingly stringent requirements from their investors and regulators.

These challenges have ignited an analysis that hinges on removing internal and external redundancies in the operating model of private capital players.

This programme will endeavor to define the role of Luxembourg in private markets and the possibility to take the lead in Europe by driving further adoption of new technology and next generation financial infrastructure.   

One key finding when bringing together market experts; a catalyst requirement to motivate the financial sector participants to co-invest and develop mutually beneficial resources.

Future Foundations Programme 

The Mutualization initiative for Luxembourg’s financial services center has emerged following the recommendation of the ‘Haut Comité de la Place Financière’ (HCPF) who proposed the formation of a working group focused on this project.

HCPF approved a dedicated initiative under the LHoFT to implement the recommendations.  

Formally, this programme is to address the challenges financial institutions are experiencing as it relates to margin compression due to increasing costs and more competition.

The main objective is to develop mutualized utilities for the financial sector to mitigate the cost challenge as well as the increased inefficiency which accompanies the collection of KYC documents which have proven to be an unscalable process for all. 

The Programme, hosted by the Luxembourg House of Financial Technology, “LHoFT”, contains a Steering Committee composed of key industry associations representing their members, namely ABBL, ALFI, ACA, LPEA, L3A and LuxCMA, complemented by the MinFin and CSSF as observers designed to foster collaboration and acceptance.

The Steering Committee will be supported by a Working Group of thematic experts and specialists from the industry appointed specifically for each initiative. The initial forecast for the duration of the programme will be 18-24 months with key milestones along the way.

Call for applications! 

The LHoFT will launch a large campaign to promote the call for applications locally and internationally in Q3 2023.

There is a minimum requirement of one edition per year, when five applicants will be selected.

The LHoFT will collect applications and sort them based on business eligibility criteria.

I.                 Preparation

In the coming months, the business requirements and specifications will be defined and prioritized by the Steering Committee. The goal will be to identify the business needs, assign specific criteria and outline the high-level scope. 

II.         Participation benefits

The clear industry requirements and incentives through a proof-of-concept commitment and co-funding of EUR 300,000 are some of the initial benefits. Interested parties will be informed on additional monetary and non-monetary benefits that are embedded in the programme.

III.         Evaluation 

A jury, appointed by the Steering Committee, will set evaluation criteria and select five to ten applications to participate in the programme.

To be eligible for the programme, the applicants should be or become incorporated in Luxembourg. 

IV.         Bootcamp

A one-week (5-day) forum to run a detailed overview of the solution with advice and engagement from the industry stakeholders and experts.

The applicants must submit their final proposal within four weeks post Bootcamp.

 V.         Laureate selection 

A winner will be selected by the Jury and will be eligible for a EUR 300,000 grant. A pitch day will be organized within 8 weeks of the Bootcamp, leading to the final selection. 

Topics & Potential Utilities

Mutualizing AML/KYC documentation across financial institutions in Luxembourg and potentially create waves worldwide and define a golden standard set of documents required for onboarding clients and investors.

Key target areas of interest would include:

•  Reviewing legal and regulatory requirements by CSSF as they relate to licensing.
• The impact of Cybersecurity standards and certifications around Cloud Managed Services where an anonymized database capturing the standard data points.
• Establishing the template or model where stakeholders create their digital identity/ footprint to facilitate institutional needs with the required material to perform their imposed internal regulatory regime. The utility could operate or function as a clearing house or document repository.
• Communication interface with regulators such as the CSSF; transmitting documents between institutions and customers.
• Balancing liability, responsibility, and vulnerability within an open-source database.
• Pledges or commitments to ESG measures
• Utilization of artificial intelligence capabilities to create digital “passports” at the European Union level.

Interested applicants can reach out to info@lhoft.lu for more information on the Programme or visit https://lhoft.com/events/