In spite of the stable juridical and regulatory framework in Luxembourg, the landscape of its legal market is constantly changing, driven by various factors: authorities’ desire to attract more international investments, law firms’ appetite to better serve their clients and local businesses’ innovative spirit.
With a population of half a million, Luxembourg is one of the world’s most developed economies and a key seat of the European Union (EU). Thanks to its strategic location at the heart of Western Europe, social and political stability, innovative and international orientation, as well as modern legal and regulatory framework, the Grand Duchy is the euro zone’s premier private banking center and the world’s second largest fund center, attracting banks, insurance companies, investment fund promoters and specialized service providers worldwide.
HIGH CONCENTRATION BUT A LACK OF SPECIALISTS
This small territory has the highest proportion of lawyers to inhabitants in Europe: in total 2,203 in September 2014, approximately 400 lawyers per 100,000 residents (Based on a population of 549,680 on January 1st, 2014), compared to 90 in France for the same period. Highly internationalized, the Luxembourg Bar hosts 39 nationalities, with 42% of lawyers registered being French, followed by 30% Luxembourg, 11% Belgian and 9% German.
In spite of this seemingly huge number, Luxembourg suffers from a lack of highly specialized lawyers in specific fields, where pronounced specialization and expertises are required: insurance and reinsurance, telecoms, personal data protection, copyrights and financial law, especially investment funds. Firms are constantly looking for senior lawyer profiles boasting specialized education and sound and substantial professional experience.
A HIDDEN GEM FOR GLOBAL FIRMS
Viewed as a land of milk and honey, Luxembourg has never stopped luring international firms. A number of Anglo-Saxon firms had to make a tradeoff between continuing working for their clients in their activities in Luxembourg through a remote platform abroad and opening a local office for more immediate proximity with clients. Some recent examples are the arrival of Bird & Bird and the merger between the global giant Dentons and local firm OPF Partners. Firms of neighboring countries such as Belgium, the Netherlands and Germany are also active in the country: new arrivals in 2016 include German firm GSK in March and Netherlands-based AKD in June.
However confident the newcomers are, only a few firms have managed to penetrate the market, and most firms don’t eat into the market of their local peers. They are often confined to working with their own clients on site, and whenever there is an issue regarding conflicts of interest or litigations, a local lawyer is called upon. Furthermore, these firms rarely practice Luxembourg law.
THE HAPPY LOCALS
As a result, most established local firms remain calm and proud of the attractiveness of the market, and even the numerous very small structures continue to have stable work volume thanks to their long-established relationships with local clients, sometimes individual or family businesses.
For Alain Grosjean, a partner at independent firm Bonn & Schmitt, their clients stay in spite of the entry of new firms and the key to remaining competitive is reactivity and independency. Pierre-Alexandre Degehet, a partner at Bonn Steichen & Partners, adds that such a situation may stimulate local firms to conduct a new and thorough review of their business model and search for innovative ways to create business and new means of providing legal services, which may turn out to be a blessing in disguise. Leading local firm Arendt & Medernach, for their part, decided to provide clients with comprehensive business assistance by going beyond the legal sphere and creating Arendt Regulatory & Consulting in 2013, a consulting company specialized in the establishment of all types of regulatory procedures.
INNOVATION STEMS FROM STABILITY
Although the Luxembourg legal framework is very stable, judicial developments are constantly happening. A highlight is the Luxembourg Parliament adopting on July 13th, 2016 the long-expected new law on the modernization of company law, introducing the most substantial amendments for decades to the legal rules applying to Luxembourg companies. This confirms and reinforces the “business friendly” climate for which Luxembourg is well-known to investors around the globe. On the same day, a new law on the creation of a simplified private limited liability company (Sarl-S) with a minimum share capital of €1 was adopted and intended to facilitate the creation of business by young entrepreneurs.
Apart from the corporate law side, sectors such as banking, data protection, insurance, asset management and tax have also been constantly subjected to legislative changes or the transposition of EU directives.
A BRIGHT FUTURE
In recent years, Luxembourg has moved towards greater financial transparency and the abolition of the banking secrecy has been in effect since January 2015. The business of affluent foreign clients simply stashing their wealth in Luxembourg bank accounts for tax evasion is largely a thing of the past. As a result, banks attract less and less small investors but more and more large fortunes as well as data center activities. Services offered by business law firms have changed accordingly, as noted by Rosario Grasso, President of the Luxembourg Bar Association: “Very strongly focused on tax and financiallaw, these firms are diversifying to meet thespecific needs of their clients which are oftenlarge international groups searching for acomplete range of legal and tax services.”
Wealth management continues to thrive. According to Private Banking Group, assets under management (AuM) in the private banking sector have increased by 10% compared to the previous year, reaching €350.6 billion at the end of 2015.
The fintech sector is another on the rise, thanks notably to the support of the government and the dynamism of startups. According to the Luxembourg for Finance 2020 Vision, the 2016-2017 objectives for Luxembourg are to develop further as a center of excellent in cross-border finance, to be the EU onshore financial hub of reference, and to become a digital leader in Europe.
Although the impact is still quite uncertain, the Brexit should also benefit Luxembourg, since asset managers or companies would prefer to set up shop in an EU country to continue having the passport to sell their services in this huge market, and Luxembourg has all its advantages.
Looking forward, Luxembourg unquestionably remains a world financial market with strong interests in investment projects into the country from international communities, providing both international and local lawyers with a steady flow of work.
Jeanne Yizhen Yin