Outsourcing up 90% across Luxembourg’s financial sector 

RUE GERHARD MERCATOR, LUXEMBOURG — A striking 90% of financial companies in Luxembourg are now outsourcing some of their activities to third-party providers, revealed PwC Luxembourg’s 2023 Sourcing Strategies Survey. 

The survey polled over 300 executives across banks, insurers, and asset managers. It uncovered a major shift where institutions fully outsource functions rather than partial outsourcing. 

The percentage of fully outsourced activities has almost doubled from 12% in 2021 to 22% in 2023. Tech functions lead in outsourcing, especially cloud services, used by 68% of firms. AI outsourcing is still limited as few firms have implemented it yet.

Meanwhile, investment firms are taking the lead in the sector, with 96% admitting to keeping at least some outsourced activities in their operations. This is followed by Specialized PSF firms (94%), asset and wealth management firms (92%), and management companies (91%).

Cost reduction remains the top benefit of outsourcing. However, when choosing providers, quality, and expertise have become more important selection criteria than cost. This comes as regulations like the EU’s Digital Operational Resilience Act (DORA) require greater oversight of outsourced functions.

Banks are most concerned about DORA’s impact, with over a third expecting major effects. However, asset managers also anticipate moderate to significant impacts. Over half of firms believe DORA will affect their outsourcing strategy or internal organization.

The report cites the asset & wealth management sector’s profit margin pressures as a driver towards more outsourcing. However, regulations balancing these efficiencies with appropriate oversight will be an increasing focus for the whole sector.