Speaking in an interview with Reuters, director-general of the Commission de Surveillance du Secteur Financier Jean Guill explained that the Ponzi fraud has not damaged the sector "in any measurable way".
Investors with funds in Luxembourg lost around Â£1.7 billion to the fraud, which resulted in the US financier being sentenced to 150 years in prison.
However, Mr Guill said there was no way the Luxembourg authorities would have been able to detect the illegal activity.
"People did not invest with Madoff because they thought he was a thief, but precisely because he had a very good reputation," he told the news source, adding that there will "always be fraud" in the financial sector.
Earlier this month, the Associated Press reported that at least ten people are to be charged in the coming months regarding their alleged role in the crime.