Annual Report - paperJam

2010 also saw the Basel Committee agree on new capital and liquidity rules for banks; and this after
only a bit more than a year of negotiations compared to the 5 years it took to reach an agreement on
Basel II. The complete Basel III package will be gradually phased in until 2019. There is no doubt that
Basel III will have a significant impact on global banking. Higher capital requirements and stricter liquidity
rules will affect banks’ profit margins, and, together with other regulatory measures in the pipeline,
they could have widespread and unpredictable effects on banks, but also on our economies. In any
case, it is crucial that the new rules are globally implemented, and not just in Europe. Unlike for Basel II,
the US seems to be on board for the implementation of the new rules this time around. But there is still
a long way to go before Basel III is fully implemented.
Healthy competition presupposes that everyone plays by the same rules. This is
especially important when it comes to regulation. As a founding member of the
European Union, Luxembourg has always known how to compete and prosper
within a harmonised regulatory framework.
However, the financial crisis has awoken a number of nationalistic and protectionist reflexes that many
believed to have been discarded with the creation of a single market and increased globalisation. In the
aftermath of the crisis, there has been a growing tendency to re-nationalise financial markets and repatriate
clients’ assets.
The ongoing discussions on the implementation of an automatic exchange of information
in Europe are part of this trend. Not only would such an automatic exchange of
information jeopardize a global level playing field to the advantage of non-EU financial
centres, it would also discourage customer mobility and cross-border banking within
the European Union itself.
Indeed, the automatic exchange of information would only apply to non-resident clients. If customers
keep their bank account in their own country, they are exempt, since in many countries tax authorities
have no right to automatically receive account information from banks. Essentially, it would thus deter
clients from opening an account in a country other than their own. That this goes against the fundamental
EU rights of the free movement of people, capital and services is self-evident. Unfortunately,
this is not how most other member states see it. While these countries have sizeable domestic markets
of their own, Luxembourg relies on exporting its financial services. We can therefore not accept that
data from Luxembourg banks is sent throughout Europe, simply because we happen to have a largely
foreign clientele, while other member states mainly deal with domestic clients.