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Why Luxembourg?

Apart from a clear regulatory framework for crypto-assets with MiCA's upcoming enforcement, what other reasons make Luxembourg an attractive destination for CASPs and FinTech companies in general?

5 min read

7 May 2024

The United States (US) currently presents significant challenges to crypto-asset services due to a lack of clear regulatory frameworks and a litigious environment. The SEC filed lawsuits against Ripple Labs in 2020 over XRP, the CFTC prosecuted Tether in 2021 for misrepresentation of reserves, and more recently (2023) the SEC is suing Bittrex even after it stopped US operations. In contrast, the EU provides a clearer and more accommodating regulatory environment prompting many crypto firms to relocate from the US to this jurisdiction. This may be exemplified by MiCA as well as by the future EU AML rule book which specifically includes CASPs.

Mrs. Erin Houchin, Member of the U.S. House of Representatives. Hearing on oversight of the SEC, House Financial Services Committee, 18/04/23.

However, no person may provide crypto-asset services within the EU, including Luxembourg, without first obtaining a CASP authorisation (Articles 59 to 63 MiCA). We give you a list of 12 reasons why you should consider to establish your CASP or FinTech business in Luxembourg.

Nerve centre of the European Union. Luxembourg touts a strategic position at Europe’s crossroads, making it an appealing base for companies navigating the regional business landscape. It gives access to the European single market and hosts numerous EU institutions and intergovernmental organisations, including the European Court of Justice (ECJ), the European Investment Bank (EIB), the European Stability Mechanism (ESM) and the Court of Appeal of the Unified Patent Court (UPC).
Chosen EU jurisdiction for prominent US tech firms. Luxembourg has not only attracted industry giants such as Microsoft, Skype Technologies, eBay, and PayPal since the early 2000s but also developed a significant presence of some GAFAM companies (Google, Amazon and Microsoft) following the recently announced Google-Proximus partnership to deliver Google Distributed Cloud Hosted in Luxembourg (Proximus, Press Release).
Epicentre of crypto-assets and blockchain technology. In the realm of crypto-assets and blockchain, Luxembourg's entities benefit from their proximity to the regulatory body - the CSSF. The country is also the home to numerous VASP/CASP (see here, at the end of our Webpage), including Bitstamp Europe, Coinhouse, Joompay, Paypal, STOKR, Swissquote Bank Europe, Sygnum Bank, bitFlyer Europe.
Top-ranking Global FinTech ecosystem. According to a 2022 survey conducted by McKinsey, Luxembourg secures the 4th position among 29 European countries for its outstanding FinTech startup ecosystem (McKinsey, Report - Europe’s fintech opportunity). In the broader international context, the Global Financial Centres Index 33 (GFCI33) positions Luxembourg as the 11th leading centre in the FinTech industry (Global Financial Centres Index 33, p. 11).
Europe’s most advanced data centres. Luxembourg serves as the home base for the EU EuropHPC Agency, an initiative focused on interconnecting world-class supercomputers. The country also hosts an impressive 40% of all European Tier IV certified data centres, as detailed by Luxinnovation's news article "Setting the scene for digital success" (Luxinnovation, Setting the scene for digital success). Additionally, Luxembourg acts as an ultra-low latency hub with fibre routes connecting it with major European cities (Luxembourg Government, p. 12).
Top-notch ICT infrastructure. Luxembourg is acknowledged for possessing among the world’s best ICT infrastructure, ranking 8th in this category according to the 2022 ISEAD Report (ISEAD, Report 2022, p. 163).
Second in digital readiness. Luxembourg proudly secures the highest spots on the global scale in terms of digital readiness. As per a multifaceted study published by CISCO, Luxembourg is consistently ranked 2nd in the Digital Readiness Index, trailing only behind Singapore (CISCO, Digital Readiness Index). It notably excels as a start-up environment and in technology adoption.
Second in Digital legal framework. Globally recognised as the second-ranked country in terms of its Digital Legal Framework, Luxembourg is surpassed only by the United States. This position, highlighted by the World Economic Forum, reflects the rapid adaptation of the country's legal framework to digital business models (World Economic Forum, The Global Competitiveness Report. 2020).
Best startup environment. Luxembourg leverages collaborative projects with the University of Luxembourg's Interdisciplinary Centre for Security, Reliability and Trust (SnT) and the Luxembourg Institute of Science and Technology (LIST). It offers multiple sources of public and private funding, including innovation and R&D grants, while nurturing diverse support initiatives such as the dedicated national FinTech platform - the LHoFT (Luxembourg House of Financial Technology) (Luxembourg for Finance, FinTech, p. 4).
Global hub for funds. Luxembourg is home to nearly €5.9 trillion in assets under management. This establishes Luxembourg as the preeminent investment fund centre in Europe and the second-largest worldwide (only behind US), as indicated by Alfi (Association of the Luxembourg Fund Industry) in its 2022 press release, and in its report titled "Luxembourg, The Global Fund Centre" (Alfi, Press Release 2022; Alfi, Luxembourg, The Global Fund Centre).
Europe's hub for reinsurance companies. Luxembourg shines in the reinsurance sector on a global scale. Additionally, the country serves as the largest domicile for captive reinsurance within the EU, hosting close to 200 reinsurance undertakings as of 2020 (PWC, Luxembourg: The hidden gem of Europe).
Consistent economic stability. Luxembourg boasts economic stability standing among the exclusive group of ten countries worldwide that hold a AAA rating from all major credit rating agencies (Fitch, Fitch Affirms Luxembourg at 'AAA'). The country's public debt stood at just 24.4% of GDP in 2022 (STATEC) and is projected to be 26.5% of GDP in 2023 (Fitch, ibidem.). Its growth rates constantly exceed the EU average, with an impressive 6.9% increase in GDP in 2021 (Paperjam).
Copyright © 2024 Ruben Mendes ( CASP ).