LUXEMBOURG: An introduction to FinTech Legal

An Introduction to FinTech Legal in Luxembourg 

The financial market and key players 

Luxembourg is a pioneer, leading cross-border financial centre with longstanding strengths in investment funds, banking and insurance.

It is the largest investment fund centre in Europe and the second largest in the world, with the Luxembourg global market in the fund industry amounting to more than EUR7 trillion. More than 120 banks have a presence in Luxembourg, mostly branches and subsidiaries of foreign banks. Based on its success in life insurance and reinsurance – and since Brexit, increasingly in non-life insurance – the Grand Duchy also harbours a European insurance hub with an international outlook.

More recently, Luxembourg has positioned itself as a frontrunner in the FinTech sector. The presence of a financial centre at the heart of Europe, combined with a stable political, economic and regulatory framework, a business-friendly environment, and the necessary expertise has proved to be fertile ground for FinTech companies to establish themselves in Luxembourg.

This has allowed Luxembourg to become a gateway to the EU for international FinTech companies and has led to the development of a bustling FinTech ecosystem that is home to more than 250 FinTech companies. Several sectors have evolved within this context specialising in payments, big data and AI, InsurTech, cybersecurity and authentication, FundTech and investments, RegTech, lending and blockchain.

An important part of this FinTech (r)evolution has been the payments sector. The creation of a legal framework for non-bank payment service providers by PSD 2 has resulted in the emergence of Luxembourg as a platform for offering payment and e-money services across the EU. Market leaders in the sector such as Alipay, Amazon Payments, PayPal and Rakuten have chosen Luxembourg for their European headquarters.

Legal, political and economic evolution  

On an international level, geopolitical developments cause political and economic fragmentation, and a heightened level of protectionism. On a national level, Luxembourg is well placed to cope with these challenges for the benefit of its FinTech sector.

Luxembourg benefits from its size in different but complementary ways: it has access to the European market and contains a large international financial centre but simultaneously remains a small country.

Luxembourg-based companies can access the European market through the use of their European passport, which allows them to offer their services in the EU/EEA via locally established branches or on the basis of freedom of services. This enables any FinTech to take advantage of an extensive market to scale up its business.

The presence of an international financial centre stimulates FinTech development in multiple ways. For example, the cross-border nature of the Luxembourg financial sector incentivises RegTech solutions to deal with the complex regulatory compliance. The development of such solutions benefits from the availability of the necessary data, access to capital and available financial expertise.

The small size of Luxembourg further ensures that there is a consensus on the substantial importance of the financial sector to the country. This is reflected on the political, regulatory and market levels, which work together to create a business-friendly environment and stay ahead of all finance-related technological evolutions.

On the political level, reference can be made to the four blockchain laws that outline the rules for issuing, holding and circulating securities within or through a blockchain. These blockchain laws have gradually integrated blockchain into the Luxembourg securities market. They allow the use of blockchain and incorporate the intrinsic advantage of the technology into the legal framework.

In the fourth blockchain law of late 2024 (“Blockchain IV”), the legislator decided to make full use of the opportunities offered by blockchains. Indeed, traditionally, the establishment of a two-tier holding chain between the central account keeper and secondary account keepers is required for dematerialised securities. With Blockchain IV, an alternative model was introduced without a two-tier holding structure if a blockchain is used, thus recognising that technology renders it technologically obsolete.

Besides appropriate regulation, the FinTech sector depends equally on the presence of the right companies and people. Aware of this potential constraint, Luxembourg has adapted its tax legislation for 2025. With regard to companies, the reform provides for a reduction of the corporate income tax and the abolition of the subscription tax for active ETFs. With regard to people, the reform is threefold: a streamlined and simplified expat regime to attract world-class talent, a more attractive profit-sharing bonus to improve employee retention and a partial tax exemption for bonuses for young employees to nurture talent.

On the regulatory level, the regulator’s commitment to the FinTech sector has been most clearly visible through the creation of the Innovation Hub by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg regulator of the financial sector.

Any person wishing to present an innovative project or to exchange views on the major challenges faced in relation to financial innovation in Luxembourg has, in this hub, a dedicated point of contact. More broadly, the Innovation Hub provides support to market participants, enhances the regulator’s internal functioning, promotes dialogues with all national and international stakeholders, and monitors and communicates on regulatory and market developments.

On the market level, multiple organisations have been created to support market participants and bridge the gap between the market and policymakers.

In this regard, the Luxembourg Bankers’ Association (ABBL) and the Association of the Luxembourg Fund Industry (ALFI) should be mentioned, as they regularly discuss FinTech-related subjects and make suggestions to policymakers. In addition, the Luxembourg House of Financial Technology (LHoFT), a public-private initiative, acts as the nation’s central hub for FinTech.

Outlook  

The emergence of Luxembourg as a leader in the integration of blockchain, distributed ledger technologies and virtual assets into the financial sector shows the continued appeal of Luxembourg for the FinTech sector. Indeed, under both its national blockchain laws and the European MiCA regulation, Luxembourg had its pioneers: the European Investment Bank issued its first sterling-denominated digital bond in Luxembourg using the digital asset platform of HSBC in Luxembourg under Luxembourg’s blockchain laws, and Banking Circle issued the first MiCA-regulated stablecoin backed by a bank in the EU. On 19 February 2025, Franklin Templeton announced the launch on a public blockchain of its new Franklin OnChain U.S. Government Money Fund (a sub-fund of the Luxembourg-registered Franklin Templeton OnChain Funds), the first tokenised Luxembourg-registered UCITS SICAV. Franklin Templeton has also developed an in-house blockchain transfer agency system that allows the register of this fund to be kept on blockchain, which was approved by the CSSF as it meets all Luxembourg applicable requirements in this respect.

The implementation of the European Commission’s Savings and Investments Union Strategy may offer opportunities to the Luxembourg financial sector and its FinTech companies. Increased retail participation in capital markets and retirement savings, the promotion of equity investment by institutional investors and the removal of the remaining barriers to the cross-border distribution of EU-authorised funds across the EU may be beneficial through the easier access to a larger market that the strategy envisions.

The European Commission’s policy objective for the next five years of “unprecedented simplification”, simplifying and improving EU policies and laws to “radically lighten the regulatory load for people, businesses and administrations in the EU”, as stated in its communication on implementation and simplification, would reduce costs and make the Luxembourg financial sector more competitive internationally.

In conclusion, while past performance is not indicative of future results, the FinTech sector has every reason to feel bullish in Luxembourg.