A crypto surge is anticipated in Luxembourg following the AIFM authorization introduced by the Commission de Surveillance du Secteur Financier (CSSF), to manage crypto alternative investment funds investing directly or indirectly in crypto assets. Industry key players, including 6 Monks, an alternative investment fund manager (AIFM), and the Luxembourg House of Financial Technology (LHoFT), the innovation hub for finance, lead the charge.
The anticipation of crypto-fund authorisation has received attention from governments, stakeholders, and industry leaders. “I think that the CSSF authorisation is a big step for companies like 6M and players in Luxembourg, to be able to manage funds invested in crypto, and we are proud of this company based in our commune, and we look forward to welcoming more key players to drive economic positive influence,” said Fred Ternes, the mayor of Niederanven.
Bridging traditional finance and crypto
The 6 Monks team is composed of professionals with extensive backgrounds in traditional finance and audit. Julie Bourgeois, the lawyer in charge of legal and compliance, and Julien Wolff, a governance and risk management expert, both transitioned from notable firms. Alongside them are Quentin Werlé and Robin Ledoux, who also hail from traditional finance backgrounds. “We were the first prospect in getting this license. Our team has the right mix for this sector, with all of us with more than 10 years of work experience in the industry, and the entrepreneurial vision of our shareholder,” said Wolff.
Nasir Zubairi is the CEO of the Luxembourg House of Financial Technology (LHoFT), and under his leadership, LHoFT plays a crucial role in supporting the development of the crypto market, boosting an ecosystem that bridges financial technology with traditional finance. “As part of our work, we help companies to set up and integrate into our ecosystem in Luxembourg, matching the needs of the industry with solutions. We identify gaps, and work to fill those gaps,” said Zubairi.
Post CSSF authorisation
Securing CSSF approval was a rigorous process, taking approximately 15 months. The collaboration with CSSF was marked by efficiency and insightful exchanges, ultimately leading to the successful granting of the license. “This achievement not only validated our efforts but also positioned Luxembourg as a leader in regulated crypto fund management, but set a precedent. It was a good collaboration with the regulator, from the beginning of the process until the acceptance,” said Bourgeois.
In terms of strategic development, there is an importance of cautious yet proactive regulatory frameworks in Luxembourg. “Luxembourg’s approach of not rushing into becoming a first-mover, unlike other global hubs, has paid off by ensuring that only credible and robust firms are granted licenses,” said Zubairi. This strategy has helped avoid the pitfalls that befell many early entrants in the crypto space.
Growth potential and challenges
The challenges the crypto market faced in Europe, particularly in the lingering negative perception of cryptocurrencies due to past incidents. However, investor sentiment is gradually improving as high-net-worth individuals seek diversification through crypto assets. Overcoming this negativity requires demystifying the technology and making it more accessible to the general public. “Simplifying complex concepts like “gas fees” and ensuring that blockchain and DeFi applications are user-friendly are crucial steps. Luxembourg aims to normalize the conversation around crypto and blockchain, making it more relatable and less intimidating for potential investors,” said Zubairi.
The critical role of talent and reskilling in sustaining Luxembourg’s competitive edge in the financial technology sector. “We see the projections on our back-end, our growth has to be supported, we need to find the right people to on-board, CSSF is also very focused on that. It’s one of our key priorities to deploy a strong HR strategy,” said Wolff.
With estimates suggesting that one in three jobs will be disrupted in the next decade, there is an urgent need for continuous learning and adaptation. “LHoFT’s focus on re-skilling initiatives aims to prepare the workforce for the inevitable changes brought by automation and technological advancements,” said Zubairi.
Economic benefits
The recent authorization for alternative investment fund managers (AIFMs) to regulate crypto funds further solidifies Luxembourg’s position as a crypto-friendly hub, aiming to attract high-quality firms and foster a strong crypto ecosystem. “The European alternative investment fund market is vast, with assets under management exceeding €10tn. Currently, less than €50bn of this is invested in crypto assets. However, industry experts, including us at 6M, estimate that the crypto asset class could attract 3-5% of the total market, translating to approximately €500bn,” said Werlé.
This potential growth displays the significant economic implications for Luxembourg and Europe. Increased institutional investment in crypto assets is anticipated to enhance market liquidity and stability. This influx of capital will likely result in more stable pricing, reduced volatility, and increased trust in the crypto market. “Luxembourg’s position as a hub for investment fund management will be further strengthened, driving economic growth and job creation. Luxembourg’s early regulatory initiatives, such as being the first EU jurisdiction to regulate a crypto exchange as a payment institution, underscore its forward-thinking stance,” said Zubairi.
Advancements and operational efficiency
Regarding strategies to promote crypto investments, Luxembourg’s approach is that of a strategic one, with much study behind it. Instead of rushing to be a first mover, Luxembourg focused on attracting quality firms and creating a strong legal framework, exemplified by its progressive blockchain laws. “We knew that at the level of Luxembourg, benefits mattered, and our values aligned with that of the demands of the CSSF, in terms of quality,” said Bourgeois.
Following market changes and regulations, Luxembourg needs to embrace change and boost a culture of reskilling to maintain its competitive edge. There is inevitability of job disruptions, particularly in finance, and the necessity for continuous learning and adaptation. “There’s a lot of people whose jobs will be disrupted and they need to understand that to survive, they need to learn, they need to educate and they need to adapt. Somebody else will take our crown if we resist positive change,” said Zubairi.
