Within almost four years from the time he was appointed as CEO of the Luxembourg Stock Exchange, Robert Scharfe has transformed “tiny Luxembourg” into a global competitive market by taking on a number of groundbreaking initiatives. He talks with Aggelos Andreou about how he rebuilt LuxSE and what it takes to succeed in the financial services world.
The one thing you cannot overlook when you visit the Luxembourg Stock Exchange (LuxSE) is the old, massive golden door occupying the right wall of the main meeting room. “That door is the entrance from our old building. We kept it as a reminder that we should never lock ourselves behind golden doors again,” says Robert Scharfe, the exchange’s CEO.
When he took on the role in 2012, that was the first thing he did—open doors. Scharfe, a former banker, was on a quest to open as many doors as possible for LuxSE, by bringing it into the spotlight with a number of groundbreaking initiatives, such as the establishment of the world’s first Green Exchange.
Just before joining the organization, he had given up the corporate world after a three-decade career in the banking sector—and not without good reason. “Living through the 2008 crisis in the front row had—and still has—fundamentally changed my attitude toward finance. I came to the conclusion that I had done my share of banking after 34 years,” Scharfe says. He cannot hide his disappointment about how the sector seems not to have learned its lessons from the recession.
He says finance had ended up being disconnected from the real world and the global economy. “Simply look at what the growth rates were of the economy from 2005 to 2008 and look at how bank results had evolved over the same period,” he says. “Banks had double-digit growth. If the economy doesn’t follow, then you’re developing a business on the side.”
Thinking through his next step, he initially considered helping young entrepreneurs with their projects. Usually, he says, startups are full of brilliant ideas, but when it comes to budgeting and financing, they tend to mess up. Scharfe identifies a pattern among many startups: They tend to be so focused on their projects that they forget to take care of basic things like cash flows or paying the bills. “The idea was to be their mentor, to guide them properly, but then—like everything in life—things worked out differently,” he jokes.
Healing the scars the crisis had left on the LuxSE was one of the main reasons why Scharfe agreed to lead the organization when the board approached him asking for help. He instinctively knew that he couldn’t say no to an opportunity like that.
Scharfe is a man of many facets: a nature lover, a 1970s hippie music fan, and an extrovert by choice. But in August 2012, he had only one thing in mind: how to transform Luxembourg’s financial center into a competitive capital markets player. Almost everything had changed in the global arena in the wake of the financial crisis, from finance patterns to investors’ behavior and market structure, and yet his country’s exchange had remained the same for over five decades. “The first thing I had to do was challenge assumptions,” he says.
He started by knocking down the traditional CEO’s “ivory tower.” He talked to the employees one by one. He wanted to understand the workforce and get to know the people behind the names, the statistics, and the classifications. Scharfe says this was a crucial step with a double objective.
First, he could understand why the organization functioned the way it did, and second, it minimized people’s resistance to anything new. “Showing interest in them immediately takes away some of their fear,” he explains. “This results in having more genuine discussions with people about things that otherwise no one would feel comfortable talking about.”
He then embarked on changing the very nature of the exchange. The Luxembourg Stock Exchange abandoned its administrative orientation and shifted into a fully client-oriented commercial organization. He says that even if LuxSE had always been at the forefront of innovation for decades, nobody had ever realized that. He says he is now confident that after four years of this transformation, clients can now understand what LuxSE has to offer. “We are much more outspoken, we talk about our plans, and show how our service differs from others,” Scharfe says.
This in-house transformation was the foundation the exchange needed to boost its outlook and communicate its work to the wider public. Scharfe considered numerous options before deciding to take a somewhat unconventional road. He turned his attention to the significant benefits Asia could offer the business by strengthening ties with China. LuxSE was the first to list bonds in renminbi outside Asia, and continues to be the market leader in Europe.
In June 2014, Luxembourg was the first European exchange to sign memoranda of understanding with the Bank of China and other Chinese banks and exchanges. Scharfe says this helped cement the exchange’s position among European capital markets. “The Chinese market is relatively closed and the process of internationalization of its currency takes time,” says Scharfe, adding that he is confident that LuxSE’s initiatives will ultimately pay off as more Chinese banks and corporations prepare to open up to international investors.
Scharfe is a man who knows and understands much more than he lets on. When inevitably our discussion turned to technology, I wasn’t quite sure what to expect. After all, he is a self-proclaimed man of nature. It turns out that he is not only intimately familiar with virtually all current technology advancements in finance, but during his managerial period, Luxembourg Stock Exchange became one of the few traditional entities to have implemented blockchain technology in a meaningful way. Scharfe claims that the firm was recently listed on a specialist’s website as one of only 10 companies worldwide to have produced actual products through distributed-ledger technology.
Scharfe is not a man of theory—he likes to keep things practical. So when he talks about innovation, he means the kind of innovation that can be put in motion right away and produce results. Distributed-ledger technology is one such example of this pragmatic approach. “All these people are investing huge amounts of money to figure out what the next trading platform should look like based on blockchain,” Scharfe says. “But that’s not for us. After we understood what this was all about, we wondered how we could implement this in one of our services and at the same time continue to develop it and learn along the way.”
And so the firm’s blockchain-based platform for regulatory and market reporting was born in October 2016, after almost a year in the works. The idea behind it was to address the challenge of the ever-changing exchange landscape. Scharfe says transparency from an investor’s perspective has emerged as one of the most significant factors driving change throughout the industry. In terms of reporting, he says, issuers have obligations to keep investors and regulators informed. Blockchain provides them with the auditability to prove that they did what they were supposed to. In fact, it provides a “digital signature” on all documents publicly disclosed by issuers.
“This technology ensures that information cannot be altered or influenced by anybody else,” he says. “You see that at all stages of the passing of the message—it’s the perfect reporting tool.”
Scharfe was eager to discuss the firm’s Green Exchange. It quickly became clear that it is not just another initiative for him—it’s his lifetime achievement and the meeting room was filled with palpable excitement when he began to speak about the project. When it comes to the environment, Scharfe is quite vocal. For Scharfe, the Green Exchange is not only about innovation but also social responsibility, and he is proud to have been at the vanguard helping the global community adopt and develop sustainable investing.
Even though LuxSE has been issuing green bonds since 2007, it wasn’t until the COP21 Summit in Paris in 2013 that he realized that he had to do something more organized to boost liquidity on projects that needed trillions of dollars of investment to take off and make the necessary climate impact over the course of the following 20 years.
Right now, the Green Exchange lists half of all international green bonds, providing a solid framework and strict rules so that investors can rest assured they are indeed investing in environmental causes. Also, issuers have access to a dedicated platform in which they have the visibility they require. Scharfe says the future of finance should be green. Every company should look at how it behaves and how it can reduce its environmental footprint. “That mentality will not change from one day to the next,” Scharfe says.
But he trusts millennials, saying young people care about the environment much more now as they learn more about how much pollution each industry emits. And eventually, society will push everyone in the corporate world to go green. “Not everybody in finance cares, but the crowd is growing, and it is the only way,” he says.
Strong Moral Spine
As for the future of finance, Scharfe says traditional banking will be replaced by fully connected and connectable applications. In that sense, he says millennials will be the catalyst in shaping that world, because for them, connectivity is everything. “Very few young people are interested in finance because of the bad reputation this sector currently has,” says Scharfe. “But they should realize it is they who have no past and can shape the future of the industry. With their adventurous attitude and strong moral spine, they could bring a lot of value to the financial world.”
Scharfe entered the industry because that was the trend in Luxembourg when he was a teenager. His country was emerging as an open-border international economic center in Europe and, conveniently, he was good at math. The problem was, however, that what he had learned at university had nothing to do with what he encountered when he landed his first job at the General Bank of Luxembourg on its international business sector.
“When I entered the industry in the 1970s, capital markets activities and asset management were hardly developed, and risk management and compliance functions were literally non-existent,” he recalls. This adventurous mentality, to which he previously referred, shaped finance and banking through the various positions he went on to at Fortis Bank and later at BGL BNP Paribas. And it is what he expects from millennials—to stay curious, open and critical, when they decide to take the next step and join the finance world.
His own next step, however, is unclear. For the time being, he is busying himself being the extrovert CEO the LuxSE needed. “I spend most of my day talking to people, whether they are clients or employees—I don’t hide in my office,” he says. “I am proud to be surrounded by motivated people who understand and realize all our developments together.”
Life is not especially hard for a CEO, says Scharfe, and he would happily relinquish the reins on one condition: “When the time comes, I want to be able to say that all of this works perfectly without me.”