At the LHoFT, 64 firms were resident in our innovation hub at the start of the first lockdown in March 2020. There are now 84 firms that call the LHoFT home. All feel positive about growth in the coming year, with great excitement over explicit demand stemming from traditional institutions. Still, there is so much to be done to modernize the finance sector. The pace of evolution is slow and there is still some reticence. This reticence must be overcome and digitalisation has to be an even greater priority for the industry as we move into 2022 and beyond.

The overarching focus in 2022 must be to reduce costs in Financial Services. The average return on equity of banks in Western Europe is below 3 percent. Europe’s banking sector is the worst performing in the world. Compliance costs have increased as a proportion of overhead from an average of c. 12 percent pre-financial crisis to closer to 40 percent today for most institutions. Revenues have remained flat for several years, particularly in Securities Services. Margins are collapsing.

The LHoFT’s top priority will continue to be RegTech; solutions, processes and collaborations to allow firms to adopt and embed technologies that will help them ensure their margin and competitiveness in the coming years. Implementation of automated intelligence, data management and standardization tools in relation to client onboarding, monitoring and regulatory reporting, as well as in portfolio management and in the product distribution process, will provide institutions with more control and a buffer on costs, while also reducing operational risk. Digitalisation is the only solution to ensure long-term business sustainability.

We will continue to educate, sharing knowledge from experts domestically and internationally, in order to drive dexterity within the finance sector. Critically, we aim to help finance natives to embrace the opportunities presented by technology and remove doubts and fears over redundancy. Technology is an enabler for productivity, not a threat. A widespread study conducted across US industries by James Bessen, an economist at Boston University, found that, since the 1980’s, employment and profitability has risen faster in occupations that leverage technology for automation than those that do not. Automation tends to increase demand by reducing costs and provides more capacity for growth. Job creation, not job destruction.

In the world of sustainable finance, there is a significant role for digital solutions. Arguably, in this still relatively nascent sector, we should all be looking at a “digital first” operating model, to ensure long-term efficiency and effective scalability. There is great potential in utilizing Distributed Ledger Technologies (DLT) in relation to building out Luxembourg’s capabilities within green finance that would help the Grand Duchy secure a long-term comparative advantage.

Working together as vested stakeholders, working to create impact leveraging the incredible community we have here in Luxembourg, we can ensure that Luxembourg takes Finance Forward.