CHD ¦ 2026 Budget: CSSF Analyses of the Banking and Investment Fund Sectors

Luxembourg’s Fund Industry Swells to €5.95 Trillion as Supervisors Push Simplification Without Deregulation

A resilient fund ecosystem, sharpening competition with Ireland, and a cautious stance on centralized EU oversight: Luxembourg’s financial watchdogs outlined a market in transition, with tax receipts rising and supervisory philosophy firmly rooted in pragmatism.

Fund Tax Revenues Rise Despite Fewer Funds

Luxembourg’s fund sector continues to anchor public finances. Subscription tax revenues are expected to climb from €1.28 billion in 2024 to €1.35 billion in 2025 — an increase of roughly 5%. In parallel, investment fund managers are estimated to contribute around €1 billion via corporate income tax (l’Impôt sur le revenu des collectivités (IRC)), bringing total sector-related revenues to €2.3 billion, a substantial share of the state budget.

Interestingly, the number of funds domiciled in Luxembourg reportedly fell from about 3,200 a year ago to 3,100 today. Yet assets under management rose, reaching €5.95 trillion at end-August 2025, reflecting consolidation and scale effects. Fifty-two new fund applications are currently under review, indicating steady pipeline momentum.

ETF Leadership Tilts to Ireland; Luxembourg Leans Into Alternatives

Lawmakers probed the competitive dynamics between Luxembourg and Ireland — together representing roughly two-thirds of Europe’s fund market — and noted Ireland’s faster growth in fund registrations. The CSSF highlighted that ETF expansion currently favors Ireland, aided by a US-Ireland double taxation treaty that benefits these popular products.

Luxembourg, by contrast, appears well-positioned in alternatives, private finance, and private equity — segments that have grown increasingly influential in the European asset management landscape. The tilt suggests Luxembourg is doubling down on complex, higher-margin strategies rather than chasing ETF scale.

Bastian Schwind-Wagner_Follow "Luxembourg’s fund industry is scaling to €5.95 trillion in assets while tax revenues rise, even as the number of funds declines — signaling consolidation and strength in alternatives. The CSSF advocates simplifying procedures without weakening post-2008 safeguards, remains skeptical of centralized ESMA supervision, and prioritizes quality in crypto authorizations."

Skepticism Toward Centralized ESMA Oversight

On the regulatory front, the CSSF expressed reservations about proposals to narrow permissible investment product types and centralize supervision under ESMA in Paris. Representatives argued that funds embed regional specificities that are difficult to standardize under a single authority, absent a very large and costly apparatus. They emphasized that European supervisory authorities already collaborate extensively through joint actions, peer reviews, and supervision colleges — implying that coordination, not centralization, best fits current realities.

Mobilizing Household Savings: Europe’s SIU Ambition

The Savings and investments union (SIU) project aims to channel European household savings into the real economy, including sectors such as defense and digitalization. With only about 10% of savings currently invested in this way — compared to roughly 40% in the United States — policymakers discussed the merits of an EU-level “RAU” (avantages fiscaux selon les investissements) framework offering tax advantages based on investment choices.

CSSF representatives underscored that the success of any such initiative hinges on consumer-friendly products. Complexity remains a key barrier; intelligible, standardized retail offerings will be essential to build trust and uptake.

Crypto Firms: Quality Over Quantity

Luxembourg has three cryptoasset management firms authorized at present, with sixteen applications under examination. The CSSF reiterated that the quality of applicants is central to authorization decisions. In a market still evolving under MiCA and broader international standards, Luxembourg’s stance suggests a measured approach: openness tempered by rigorous gatekeeping.

Banks Welcome, But No Turn Back From Post-2008 Safeguards

In the banking segment, interest in Luxembourg remains steady, with about half a dozen licensing procedures underway on average. Lawmakers asked whether procedures could be simplified. The CSSF responded that today’s rules — capital and liquidity requirements foremost — are a direct outcome of the 2008 crisis and remain essential to safeguard depositor confidence and sector stability.

That said, supervisors see merit in reviewing the sheer volume of rules to identify obsolete or duplicative requirements. The stated objective: streamline day-to-day operations without weakening prudential defenses or sliding into deregulation, which they deemed a wrong turn.

Sanctions Architecture: CSSF Open to Change, With a Speed Caveat

Currently, the CSSF investigates, imposes sanctions, and collects fines for breaches of financial rules. Lawmakers have questioned this configuration. The CSSF indicated it has no preference and no objection to changing the system, noting that it does not use fine income in its budget. If sanctioning and fine collection were shifted to another authority, however, the CSSF stressed that procedural timelines must not stretch by “a year or two”.

Budget Context: Finance Ministry Outlays Set to Increase

Against this backdrop, the draft 2026 budget allocates €1.553 billion to the Ministry of Finance, up 7.6% year on year, covering current and capital expenditures. The rise aligns with the growing scale and complexity of financial sector oversight and policy initiatives.

What It Means for Financial Crime and Compliance

• Enforcement continuity with room for structural tweaks: Luxembourg’s openness to reassigning sanctions responsibilities — provided it doesn’t slow cases — signals a focus on enforcement efficiency rather than institutional turf. For compliance teams, expect sustained pace of actions and no relief in investigative rigor.
• Alternatives ascend, ETFs gravitate to Ireland: Firms assessing domiciliation strategies should weigh tax treaty impacts for ETFs against Luxembourg’s strengths in alternatives. The shift may alter risk profiles and controls, with complex strategies demanding enhanced governance and valuation oversight.
• No appetite for deregulatory shortcuts: The CSSF’s stance — simplify where sensible but preserve post-crisis safeguards — indicates continued emphasis on liquidity, capital, and risk management. Compliance programs should prioritize resilience over minimalism.
• Cautious centralization: Resistance to a one-size-fits-all ESMA regime suggests local expertise will remain crucial. Cross-border firms should prepare for continued multi-jurisdictional supervisory engagement rather than a single rulebook enforced from Paris.
• Retail mobilization requires clarity: If SIU/RAU concepts advance, consumer protection and product transparency will be central. Expect stronger disclosures, standardized risk labeling, and suitability frameworks — areas where misconduct risk (mis-selling, misleading marketing) will draw scrutiny.
• Crypto permissions: Quality filters will remain tight. Applicants should expect rigorous AML/CFT expectations, custody controls, governance checks, and operational resilience requirements, consistent with the jurisdiction’s conservative posture.

Luxembourg’s regulators project a clear message: embrace growth, especially in sophisticated asset classes, but keep the guardrails firmly in place. For financial crime professionals, the landscape remains disciplined, with efficiency-oriented refinements on process rather than a loosening of the rules.

Dive deeper

• Chambre des Députés ¦ Budget 2026 : les analyses de la CSSF sur les secteurs des banques et des fonds d’investissement ¦ Link