The adoption of Generative AI (GenAI) presents banks in Luxembourg with a unique challenge, distinct from any technological disruption they have encountered before—whether it be the internet, open banking blockchain, or cloud migration. Unlike these past innovations, which gradually reshaped the banking sector, GenAI is revolutionary in both its nature and its rapid pace of adoption. While historical parallels can be drawn with these previous innovations, the transformative potential of GenAI in the banking landscape earns it a spot as the new face of banking disruption. 

We have captured in this year’s report the potential of GenAI to drive efficiency, enhance customer experience, and bolster security measures. As the banking sector grows more complex, we believe GenAI will stand out as a critical tool for optimising operations and meeting the evolving expectations of customers through personalised and predictive services. Additionally, its sophisticated algorithms can strengthen security by detecting and responding to cyber threats in real time, providing robust protection against fraud and other security breaches.

However, realising the full potential of GenAI in Luxembourg’s banking sector requires navigating a complex array of challenges. In addition to a fragmented regulatory landscape, evolving employee expectations, and the transition from legacy systems, banks must also prioritise addressing critical concerns around data protection, security, and the growing risk of malicious use by increasingly sophisticated cybercriminals. The need for upskilling employees to effectively work with GenAI also cannot be underestimated. These factors not only create opportunities for GenAI integration but also highlight the importance of robust governance frameworks to ensure that these risks are proactively managed. 

To navigate these challenges, we recommend some key steps that are necessary for the GenAI adoption journey for banks in Luxembourg.

Key steps 

- Establish responsible AI policies and a secure environment to build a foundation of trust

Establish responsible AI policies by implementing stringent security measures such as data encryption, strict access controls, and comprehensive incident response plans. However, these initiatives should not end here, banks must institute monitoring systems that keep these measures up-to-date. By adopting a responsible AI toolkit, banks can pursue AI’s value while mitigating its risks, providing the foundation for trust-building practices. It is also essential that such responsible AI measures do not limit GenAI initiatives but rather, accelerate them.

- Define an AI strategy to prioritise high-value use cases

Conduct a detailed assessment of the bank’s value chain to identify areas where GenAI can create the most value. A clear understanding of these priority areas will determine how each use case contributes to the overarching goals and vision of the bank. This will help align the bank’s resources and efforts to initiatives that have the most meaningful impact on the bottom line.

- Build initial use cases by identifying patterns that can scale

Develop detailed implementation plans for the top use cases identified. This entails assembling a dedicated core team to enhance speed, repeatability, and oversight. From this, it is important to select pilot projects that can be executed with relative ease and demonstrate clear, tangible benefits. These pilots must focus on core business processes, organisational readiness and repeatability.

- Scale use cases to derive value across the entire value chain

Scale use cases by building GenAI into workflows and applications and adapting its patterns across the business. Scaling will typically imply new tooling and integration services with enterprise data and applications. This in part, requires robust data integration services that can seamlessly connect GenAI tools with existing enterprise systems, ensuring smooth data flow and interoperability.

- Review and refine AI governance and implementation to continuously align with evolving regulatory standards

Effective GenAI governance involves establishing clear policies and frameworks that define how AI systems should be developed, deployed, and monitored to ensure they align with regulatory standards and ethical considerations. Establishing robust feedback mechanisms will advance the cause of AI governance, as it would allow for the collection of insights from various stakeholders, ensuring that AI implementations are aligned with evolving user needs and regulations.

Luxembourg’s Banking Sector Evolution

Number of banks

With 119 authorised banks at the end of the financial year 2023, the number of banks decreased by two.

Countries of origin of banks established in Luxembourg

In terms of geographical representation in the Luxembourg financial centre, German banks still make up the largest group at 12.6% despite a slight decrease, followed by Chinese banks with an 11.8% share. Luxembourg banks, Swiss banks and North American banks both register a 10.1% share.

Balance sheet total (in EUR million)

In 2023, the balance sheet total marginally increased by EUR 5.9 billion (+0.6%). The upward trend was primarily due to the increases in loans and advances to credit institutions (EUR +31.2 billion; +9.2%) and fixed-income and variable-yield transferable securities (EUR +6.0 billion; +4.8%).

Download our report