Keep City close, Gramegna pleads as EU mulls reforms
Delegation is crucial for Luxembourg, outgoing finance minister tells European Commissioner for financial services
Europe's financial markets should remain open to outside actors, outgoing Finance Minister Pierre Gramegna said on Monday during a visit of a top EU official gauging the mood on reforms of the bloc's banking sector.
Gramegna, a pro-business liberal, urged the EU to stay open to work with other "countries and players" now that transactions within the 27-nation bloc's single market no longer counted as cross-border transactions.
"I don't want to build a fence around the single market", Gramegna said about Luxembourg's lucrative fund industry, emphasising that it was particularly important to keep the UK closely linked to Europe's financial sector.
Luxembourg's fund industry, the second largest in the world, is crucially based on the EU principle of "delegation", which allows funds to be headquartered in the Grand Duchy while the bulk of the business - such as portfolio management and sales - remains elsewhere, predominantly the City of London.
"We should not limit the use of delegation arrangements", Gramegna said at his "probably final press conference", speaking out against others in the EU who want to limit the legal principles to countries within the EU single market.
Gramegna's comments reflected those raised by lawmakers in parliament on Monday morning during a visit of European Commissioner for financial services Mairead McGuinness, who is travelling around European capitals to get "a more granular understanding" of their views on the issue.
McGuiness is touting Europe's capital markets union, a largely uncompleted legislative project launched in 2014 aiming to fully develop a single capital market across the EU to make the bloc financially more independent and which Commission President Ursula von der Leyen wants to revitalise.
Welcoming the proposals, Gramegna said he understood that Europe cannot automatically grant the UK access to its financial markets as the two sides failed to negotiate full legal equivalence for financial services after Brexit.
But because the UK had long been part of the EU, regulations on both sides of the Channel were still largely comparable, "and we should build from that basis", according to Gramegna. "The City of London drifting away from the continent into the Atlantic is not to the benefit of the EU", he said, particularly if the UK sought a closer relationship with the US in finance.
The EU has set the gold standard on regulation of hedge funds and other so-called alternative investment funds, Gramegna said, and should keep the delegation principle in place for this product range as well.
Gramegna also spoke about EU plans to harmonise capital requirements for banks. This so-called "host-home" principle is a concern for smaller countries like Luxembourg, which fear end up having to foot the bill if a subsidiary of a large foreign bank in their country collapses.
"We need to have stability in all member states", he said.
In 2019, a reform of the EU's fund industry largely went Luxembourg's way as Gramegna shielded the sector from an extra layer of supervision.
Gramegna also spoke Luxembourg's opposition to including gas and nuclear in the EU's labelling system for sustainable finance. Last week only, lawmakers in Luxembourg agreed that the Grand Duchy should take legal steps if nuclear is included in the EU's green taxonomy. McGuinness said that other EU countries had different views, citing the example of Finland, which has one of the most ambitious targets globally, by allowing nuclear power in its energy mix.
In November, Gramegna announced he was leaving his position at the end of the year. He will be replaced by Yuriko Backes, currently head of the household of Luxembourg's royal court. She also was a political advisor to two prime ministers and represented the European Commission in Luxembourg.