Key areas include digital payments, robo-advisory, peer-to-peer lending, and blockchain technology, particularly in the area of cryptocurrencies and smart contracts.

The term “fintech” was added to the Oxford English Dictionary in 2016 and to the American dictionary Merriam-Webster in 2018. Below is a chart indicating the search interest for the word “fintech”^1, which clearly shows an exponential increase since 2015.

In Luxembourg, we also see increased interest and initiatives for fintech and technology. The Luxembourg House of Technology helps to foster innovation and acts as an incubator for many start-ups. The Fintech industry is brimming with start-ups, companies who often do not have the same resources as the more established financial institutions. Many sacrifices on the legal spend, regrettably not involving legal counsel from the outset. Start-ups have a lot of things they need consider, such as rights around IP but also thinking ahead for a potential future resale of their business. To do this properly a lot of thought and planning needs to go into the exit strategy and the contractual arrangements need to be robust and cater for the unexpected. The involvement of the regulators is also something which needs to be kept in mind as activities or services are likely to be regulated and require a licence.

Luxembourg has also become known for its avant-garde legal framework, commonly referred to as the Blockchain Laws and is a front-runner when it comes to use of DLT in the financial sector. We see many international financial institutions making use of the Luxembourg laws in particular in capital markets. Luxembourg is also a destination of choice as the EU-hub allowing firms to access the entire EU Single Market and passport e-commerce and payment services and for the future crypto asset service providers under MiCA. It is the incredibly strong and established Luxembourg financial sector which provides an excellent client base and home turf, also for the Fintech players.

Luxembourg has also become known for its avant-garde legal framework, commonly referred to as the Blockchain Laws and is a front-runner when it comes to use of DLT in the financial sector.

Cathrine Foldberg Møller, partner, avocat à la Cour, Simmons & Simmons

This interest has been particularly important for digital payments, especially in the wake of the COVID-19 pandemic and people opting for contactless transactions. This has led to cash becoming a less favoured method of payment in many European countries². Both the amount of cash withdrawals and the value of cash withdrawn have been decreasing annually.

Fintech Tomorrow

Looking forward, Fintech is poised to continue its growth trajectory. AI and Machine Learning are already playing a more significant role in financial services, from fraud detection to personalized banking. We also see RegTech becoming increasingly important, helping businesses meet their regulatory compliance requirements more efficiently. We can also expect the rise of green fintech solutions, aimed at supporting sustainability and combating climate change. These technologies will help facilitate sustainable investments and enable more accurate tracking and reporting of ESG factors.

Companies also need to consider the efforts and investments of reskilling the workforce to deal with AI.

Cathrine Foldberg Møller, partner, avocat à la Cour, Simmons & Simmons

However, with these advancements come challenges. Privacy and security concerns, regulatory hurdles, and the digital divide are some of the issues that will need to be addressed as Fintech continues to evolve.

A general shift in mindset is required, at all levels. The older generations have a tendency to believe the lack of mental arithmetic is laziness. Companies also need to consider the efforts and investments of reskilling the workforce to deal with AI. In the countless articles on the topic, there is general agreement that robots will not replace humans in the workplace. Whilst that may be right, companies who want to be ahead of the curve need to think about how to optimise AI and other digital solutions.

As the trend continues to take off and products and services are developed and offered on the market, regulation inevitably follows. As lawyers we are kept busy helping our clients navigate and tackle regulatory change. A very hot topic is DORA (Digital Operational Resilience Act) which will apply as of January 2025 but there has also been a lot of buzz around the newly endorsed AI Act. This is a significant piece of legislation which will apply to providers, users, importers and distributors of AI systems. It applies across all sectors and will have a wide territorial reach as it can apply to non-EU organisations that supply AI systems into the EU. The regulation categorises AI systems by risk, both in terms of how those systems are used and, in some cases, the nature of the technology involved. Broadly speaking, the greater the risk, the more burdensome the obligations. MiCA has been introduced to close the gap on the regulation of financial instruments and cover crypto assets and the amendments to the Payment Services Directive will also introduce a different regulatory scope and features as well as enhanced consumer protection.

¹Source: GoogleTrends

²