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New government in Luxembourg: it’s a con game

The new government in Luxembourg is known.


There are very good things for the governance of the jurisdiction as Luc Frieden no longer cumulates Ministry of Treasury Budget, Ministry of Justice and Ministry of Police.


There are 15 ministers: 9 CVS (60%) and 6 LSAP (40%). But when looking at the portfolios, there are 65% for CVS and 35% for LSAP that does not include any regal minister except, Ministry for Foreign Affairs, though even this one has the competition of the Prime Minister for the representation abroad.


LSAP is given very, very sensitive portfolios for their electorate in the context of the crisis: Economy, Labor, Health & Social Security, Education (not higher education), Sports and agriculture.

They will have no power to influence the public policies in the financial center and correct dysfunctions.


17:45 Posted in Luxembourg | Permalink | Comments (0)


Luxembourg Banks Insights 2009: Best of

KPMG Luxembourg has just co-published with the Luxemburger Wort an interesting study about the banking sector in Luxembourg: Luxembourg Banks Insights 2009.



I have selected and commented a couple of statements.


Excerpt of the message by Mr Luc Frieden, Minister of the Treasury


Our current efforts notably aim at revising the regulatory or supervisory frameworks in such a way that they focus as much on the macro-prudential and cross-border context as on individual financial institutions. In the pre-crisis era the realities of worldwide economic and financial integration had indeed not yet been sufficiently taken into account but this is now due to change.


Luxembourg strongly supports recent international initiatives to restore full accountability, integrity and transparency to the financial system, including by fighting against possible abuses of financial centers to finance illegal activities or evade taxes.


Mr Frieden is one of the best politicians in Luxembourg. I wish he told the truth at the beginning of the Madoff affair on the misleading transposition that opened the drift with UBS.

The reality is that the influence of the business (read every professional: bankers, lawyers, auditors…) on the regulator and on the executive and the legislative is so important that until now the regulatory and supervisory frameworks were custom-made for the business : little control, little sanctions…, which was admitted by Jean-Nicolas Schaus, Former Director General of the Commission de Surveillance du Secteur Financier (CSSF).


Excerpt of the interview with Mr Jean-Nicolas Schaus, Former Director General of the Commission de Surveillance du Secteur Financier (CSSF)


The trend is towards stronger regulation, and there is no possibility to change this. At present, the larger EU member states are in the driver’s seat. Luxembourg is part of the EU, and nobody is considering to change this. In any event, this wouldn’t be possible, or even something to wish for.


Luxembourg as a financial place can also live without banking secrecy. I have never made a secret out of my opinion in relation to this question (…) I am not implying that banking secrecy should be abolished. We should keep it as long as possible. But the time has come to think about what will happen when it won’t be there anymore.


Mr Schaus is aware that something has changed and that the faster the financial center will take into account and accept new international trends including in the EU, the faster it will be able to face new challenges.


Excerpt of the interview with with Frank Wagener, Chairman of the Executive Board,  Dexia-BIL S.A.


It is now the time for the banks to listen, whether from the public, from journalists, and from experts, and then to take the right actions to address the issues raised. I believe this is the way to win back the public’s confidence in the banking system in general.


Mr Wagener is the first professional that admits that banks have to listen to those who may raise any information that could contradict their reigning picture of reality, and take the right action.

I will contact him. I'd like to know what he's up to. My observation and my experience of the professionals in Luxembourg, with their so-called “business standing” (English translation for “honorability” in the English version of the Law of 1993), unfortunately incline me with mistrust.


Excerpt of the interview with with Jose Placido, Chief Executive Officer, RBC Dexia Group


There is clearly a lot of discussion of this topic [responsibilities and roles of a custodian] at present, but also a lack of clarity still, even though the position given in the circulars seems to be quite clear on the duty of care of the custodian.

What is urgently needed is more clarification and a harmonized understanding on the respective roles and responsibilities of a custodian, a depositary and the respective standards of care to be applied. The sooner we have this, the better it will be for the whole industry.

It is incumbent upon all custodians to demonstrate that the applicable standard of care of a depositary or custodian has been taken seriously, and that the proper measures have been implemented to meet that standard, such as using a dedicated network team to perform proper due diligence of sub-custodians.


Mr Placido is the first professional in the investment fund industry that admits implicitly that the so-called pragmatic legal and regulatory framework lacks of clarity (lack of clarity, seem).


I will contact him. I'd like to know what he's up to. My observation and my experience of the professionals in Luxembourg, with their so-called “business standing” (English translation for “honorability” in the English version of the Law of 1993), unfortunately incline me with mistrust.

18:10 Posted in Luxembourg | Permalink | Comments (0)


Alfi News Digest: telling censorship on the depositary issue

Early July, the European Commission has launched a wide-ranging public consultation on the UCITS depositary Function. This consultation will play an important role in identifying and shaping the European response to vulnerabilities emanating from the UCITS depositary sector, with a view to improving the level of protection for UCITS investors. Commissioner Charlie McCreevy said: "The Madoff fraud has revealed that the requirements of the UCITS Directive have been transposed in very diverging ways creating an unlevel playing field in the protection of retail investors.


Why on earth is the information not circulated by the ALFI, which is the first concerned. It was circulated by the ABBL.

The last issue of the Alfi News Digest was created on 13 July 2009 : it ignores the Consultation Paper on the depositary. Neither the keyword "depositary" nor the keyword "custodian" are quoted.


I am afraid such censorship on the issue demonstrate that professionals that are upset because they fooled the investors on the so-called "faithful" transposition of the UCITS directive.


They are responsible as the ALFI actually created and supported the conditions that opened the drift.


Let's have a look on two documents that are available on their website.


Let's have a look on what stated Rafik Fischer, Vice Chairman ALFI, in 2005 for Fundlook in an article titled "Shaping the Regulatory Environment" : "The relationship between the Luxembourg Commission de Surveillance du Secteur Financier Luxembourg ( CSSF ) and the Financial centre it supervises has always been described, and rightly so, as being heavily influenced by a true common interest approach. (...) The Luxembourg Investment Fund Industry has regularly had a very close and direct say on the evolution of the Luxembourg prudential regulatory environment governing the collective Investment Industry. (...) This influence has been exerted directly and indirectly by the lobbying initiatives taken on the level of the different professional associations, be it ALFI or ABBL , but also and more importantly, trough a direct association with the Luxembourg Supervisory Authorities by means of a number of standing committees (...) It is in those Committees which have proven instrumental in launching new legislative initiatives like the International Pension Funds or the SICAR ( société d’investissement en capital à risque ) and providing pragmatic and timely solutions to the evolution of the industry"

In other words, the ALFI admitted its influence on the CSSF and that it decides the Luxembourg prudential regulatory environment to be enforced. Quod Erat Demonstrandum.


Let's have a look on a flyer. It is written "All asset management activities must be approved by the Commission de Surveillance du Secteur Financier (CSSF), the financial services supervisory body which carries out an effective and pragmatic supervision of the financial sector."

What is a pragmatic supervision, knowing that the influence on the financial services supervisory body is admitted? Luxembourg is a strange regulated center where professionals decide what is to be done.



What was observed for the transposition of the UCITS directive and the misleading communication on the so-called "faithful" transposition is true as well for AML, tax evasion, corruption and any other sensitive question in this secrecy jurisdiction where those who call for an ethical approach are excluded (as an OECD report observed: "There would seem to be very little likelihood in Luxembourg that a company employee who has been witness to misappropriation of funds will report this to the authorities. According to the union representatives interviewed by the examining team, the main reason for this is the country’s small size: everything becomes known very quickly, and so anyone who reports an offence will soon find himself labelled as an informant and excluded from the labour market") as there was one rule that has exploded in their face: business over ethics.



I will quote again what I wrote at the begining of this blog :


Authorities must ask questions and accept questions especially on compliance issues. They must tighten up the ship on issues all the more than there are alternative financial centers for investors and head offices of banks. Otherwise they weaken their international credibility.

The failure to ask or to answer questions allows these authorities (either political or professional) to operate with a distorted sense of reality. In fact, Finkelstein calls companies that are unable to question their prevailing view of reality zombies. A zombie company, he says, is “
a walking corpse that just doesn’t yet know that it’s dead—because this company has created an insulated culture that systematically excludes any information that could contradict its reigning picture of reality”.

This is true as well for a financial center.




18:39 Posted in Luxembourg | Permalink | Comments (0)