Luxembourg private banks are under pressure. Costs are skyrocketing, regulations are becoming stricter and a shortage of talent threatens competitiveness. According to Yves Stein, president of the Luxembourg bankers’ association ABBL, digitization and automation are crucial to working more efficiently, but many banks are lagging behind larger, universal players. The question is not if, but how quickly the industry can adapt to remain relevant in an increasingly competitive market.
In an interview with Investment Officer, Stein, who also serves as CEO of Edmond de Rothschild (Europe), warns that artificial intelligence, automation, and shifting demographics will redefine the business.
Technology and compliance
Stein sees regulation as a necessity, not a roadblock. “We are a regulated industry, and regulation has become very complex. We need to find the right way, including the use of technology, to stay compliant, which is our first ambition, next to staying profitable.”
The latest ABBL-KPMG Private Banking Survey highlights rising costs in onboarding and know-your-customer (KYC) processes, alongside sluggish net new money growth. Many firms are turning to automation and AI to streamline operations and meet regulatory requirements.
“Let’s agree that the number of rules today is beyond a classic human capability. So it’s not an obstacle. Technology is the way to stay compliant in the future.”
“It’s technology we need to put all these rules into a system which can stay compliant,” Stein said. “Let’s agree that the number of rules today is beyond a classic human capability. So it’s not an obstacle. Technology is the way to stay compliant in the future.”
A earlier survey of Luxembourg’s private banks found IT investments rose 24.5 percent in 2023, yet many still lag universal banks in digitalisation. That survey also laid bare a significant digital divide between universal banks and private banks in the Grand Duchy. Merely 25 percent of the private banks surveyed felt they had the right skills in-house to support the digital transformation, as opposed to 78 percent of universal banks.
Talent shortages and housing bottlenecks
Stein highlights Luxembourg’s challenge in attracting skilled professionals. “We are a people business, so we are building on the expertise and the competence of our people. We have to attract into what is a geographically small country, the adequate talent to respond to the needs of our clients.”
The survey shows private banks employ around 5,300 full-time staff, but hiring pressures are mounting. Compliance, risk, and middle-office roles saw the highest growth, while demand for IT specialists fluctuates due to outsourcing. Replacing retiring baby boomers is a priority.
“What Luxembourg needs to do is stay innovative, be creative on the frameworks we can put in place, stay attractive for talent today and tomorrow, replace the baby boomers by the Gen Z and all those who are going to be the future of this industry and stay favorable to host them in this country.”
Housing is another major issue. “That’s why we also look at housing solutions for young professionals as being a key need in this country.” The ABBL is working with the government on financing models to address the housing crunch.
Switzerland as benchmark
Luxembourg often compares itself to Switzerland, the global leader in wealth management. Cross-border wealth in Switzerland totaled 2,206 billion Swiss francs in assets under management at the end of 2023, up 4.8 percent from a year earlier. Total AUM in Swiss private banks stood at 7,833 billion francs, of which 5,253 stemmed from UBS.
While Switzerland dominates cross-border wealth, Luxembourg has carved out a niche as the EU’s private banking hub. “I think 2024 was another good year for private banking,” Stein said. “We saw 7 percent growth, which brought us to 628 billion (euro), which is still only a fraction of what Switzerland has. But being both active in international private banking, with us more focused on, for instance, the European Union, we can learn a lot from each other.”
Luxembourg private banks beat the Swiss
when measured by 3-year CAGR in assets under management
Graphic provided by Luxembourg for Finance
The ABBL-KPMG survey supports this comparison. Luxembourg’s banks demonstrated better cost efficiency, with a median cost-income ratio of 63.4 percent, compared to 74 percent in Switzerland. Significantly, the costs per employee in Luxembourg are considerably lower than in Switzerland. They also achieved higher AuM per full-time employee, underscoring operational efficiency.
However, net new money inflows remain a concern. Luxembourg attracted 14 billion euros in 2023, down from 24.5 billion euros in 2022, highlighting the need to remain competitive. Swiss private banks attracted 137 billion Swiss francs in net new money in 2023, about ten times as much as Luxembourg.
Global client base
Luxembourg’s strength lies in serving a global client base, Stein said. “What makes us different and what explains our success in Europe is our international mindset, our capacity to service a more and more international clientele.”
“What makes us different and what explains our success in Europe is our international mindset, our capacity to service a more and more international clientele.”
The survey shows that 65 percent of private banking assets still come from European clients, but growth opportunities lie in Latin America and Southern Europe. Expansion into these regions requires tailored strategies and product offerings.
As younger clients demand digital solutions and ESG-driven investments, Luxembourg’s private banks must balance tradition and innovation. To stay competitive, the industry must invest in technology, talent, and regulatory adaptation to stay ahead of evolving market trends.
“We need to stay innovative,” Stein concluded.