Country experience: Luxembourg: quality management for compilation of financial services 

19.52.    Luxembourg is a small, very open economy anchored in foreign trade, thereby generating significant international transactions and capital flows. Financial services (mainly investment fund management and international private banking) are one of the mainstays of the national economy. International trade in financial services, as reported by Luxembourg in its balance of payments, is very significant. The Banque centrale du Luxembourg (BcL) and the Institut national de la statistique et des etudes économiques (STATEC) have been jointly responsible for establishing the BOP of Luxembourg since January 2002. 

19.53.    Asymmetries with partner countries have always been a major concern for Luxembourg compilers. Systematic mutual exchange of results and underlying data with partner countries in the past has led to significant reductions in asymmetries in different areas. However, asymmetry tables produced by Eurostat identified persistent bilateral asymmetries in the field of financial services between Luxembourg and selected partners. An in-depth analysis showed that the origin of the differences lies in the treatment of asset management costs taken out of income. 

19.54.    The investment fund industry in Luxembourg is the largest in Europe and serves mainly non-residents.  Almost all the activity focuses on the external sector. In principle, domestic undertakings for collective investment have no direct employment, no offices, do not directly charge fees and in most cases, income earned (on assets) is capitalized (i.e., not distributed to investors). Resident undertakings for collective investment incur expenses for management and administration, payable to a very large extent to the resident management companies.  A priori, such transactions between residents are outside the field of BOP statistics. 

19.55.    On the basis of a recommendation stemming from the European Monetary Institute and in line with national accounts concepts, Luxembourg introduced in its BOP time series a procedure to consider the management fees that are implicitly passed on to investors.[1] The economic substance is revealed by rerouting. All income (on foreign or domestic assets) earned by the undertakings for collective investment is assigned simultaneously to the investors, regardless if distributed or not. Therefore, property income earned by the fund determines the income of its unit holder (investor). The offsetting of the income assignment to the investor is both the management fees assigned to the non-resident investors (financial services) and the reinvestment of the income. 

19.56.    The bilateral asymmetries observed have their origin in that specific treatment, partially because partner countries do not always have the necessary information to produce the corresponding records. Indeed, it is assumed that many shares of Luxembourg-based undertakings for collective investment are held by nonresident households whose financial activities are probably not routinely covered by surveys.

19.57.    The geographical breakdown is derived from annual reporting to the supervisory authority that requires an estimate of the percentage of shares or units of the undertakings for collective investment invested in each country. However, uncertainty related to the geographical distribution is permitted; thus, that uncertainty is a weakness of the procedure.


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[1] See BPM6, para. 10.124.