Luxembourg Sees No Reason to Change EU ‘Delegation’ Rules After Brexit

Luxembourg’s finance minister Pierre Gramegna said on Friday the European Commission should stick to the current rules that allow funds managed in London to be domiciled and regulated in another country.

His comments pit the tiny and wealthy country against some euro zone heavyweights, which want to tighten ‘delegation’ rules in a post-Brexit Europe to attract more financial firms to their own countries.

Gramegna said Luxembourg is offering a pragmatic solution to problems Brexit will cause, by becoming a home to subsidiaries of London-based financial firms.

He also noted that a few Japanese insurers had already decided to set up subsidiaries of their London-based European headquarters in Luxembourg, with an eye on operations in post-Brexit Europe.

“We are saying delegation has worked well and is posing no problems and it should not be changed. When I say it works well, it means that investors are well protected,” Gramegna told Reuters in an interview in Tokyo.

“You don’t change something that’s working and where there is no problem – so no need to make major changes,” said Gramegna, one of the currency bloc’s longest-serving ministers, and who was once a candidate to replace Jeroen Dijsselbloem as the powerful head of finance ministers, the Eurogroup.

According to the finance minister, London is the largest country of origin of funds for Luxembourg, accounting for 17 percent, or 4.1 trillion euro ($5.03 trillion).

“Asset management companies, banks and insurers have chosen Luxembourg as their preferred location for a subsidiary. So the funds are administrated in Luxembourg, that means the risk management and accounting is done in Luxembourg but the asset management decisions are taken in London. We have a very interesting business model here,” he said.

But some euro zone countries want stricter rules, demanding subsidiaries need to have more “substance.”

“The [European] Commission, we are just beginning the discussion so we will participate proactively in that discussion,” he said.

($1 = 0.8144 euros) (Editing by Jacqueline Wong)