Financial sector looks ahead
Experts debate regulation and compliance
Financial sector looks ahead
Experts debate regulation and compliance
The international financial services sector has seen enormous change over the last few years. Since the global economic crisis began in 2007, pressure from wealthy industrialized countries on smaller offshore jurisdictions for greater transparency has marched apace, leading to dramatic changes in global compliance. The impact has been wide ranging and has left many in the industry wondering how to ensure the sector’s continued success.
Financial services are a stalwart of The Bahamas’ economy, accounting for 15-20 per cent of gross domestic product, helping to foster an affluent, educated middle class.
In the past, The Bahamas has reacted purposefully when faced with increased regulatory pressures, swiftly putting in place legislation to comply with new international standards as they are enacted. Industry experts are now saying that the sector once again needs to be proactive to remain competitive.
“I think now is the time when we have to take stock and consider how we can best build a solid, robust financial services sector that can make a sustained contribution to The Bahamas’ economy, not just for the next few years, but for generations to come,” says Adrian Crosbie-Jones, managing director of the largest independent trust company in The Bahamas, The Private Trust Corporation Ltd.
“The financial services sector needs to be flexible and responsive to changes in the environment,” says Crosbie-Jones.
To plot a course it’s especially important to understand how the business environment is likely to evolve and what that evolution will mean for the sector as a whole in the mid- to long-term.
“All indications are that there will be a sustained push by G20 countries for the disclosure of higher levels of information over the coming years,” says Brian Moree, partner with McKinney Bancroft & Hughes and a leading expert in offshore legal and financial matters. “There will be a continued increase in cross-border activity and, as an international financial centre (IFC), The Bahamas will be expected to keep pace with international compliance changes in an increasingly hostile macroeconomic environment.”
This trend could mean that assets under management here would continue to diminish, reflecting a movement of assets onshore, as regulatory burdens hinder the efficiency of offshore structures.
Moree is quick to stress, however, that the future is not as bleak as it may seem. “I don’t see any serious threat to the existence of IFCs in general. Notwithstanding the challenges, this is a very resilient industry and will continue to be so. IFCs act like weigh stations for the collection of capital for inward investment for major economies. Moreover, there will be a continuing need for wealth management and financial services, as the number of high-net-worth individuals is on the increase globally, particularly in emerging economies.”
Research confirms this trend, says former inspector of banks at The Central Bank of The Bahamas Stanislaw Bereza. “We have seen a significant structural realignment in favour of emerging markets over the last couple of years. This is likely to continue. Through our risk analysis of firms, we are seeing that many are reorienting their focus from traditional markets, such as the US and central Europe, to the BRIC nations (Brazil, Russia, India and China) and other emerging economies with large populations and high growth. The core markets that historically The Bahamas has depended on will have significantly lower growth, so we need to look at new markets and look to develop the linguistic and legal skills needed to build relationships with markets such as China.”
n response to these findings, the Bahamas government and key players in the sector have been making forays into Latin America and Asia. Last year the Bahamas Financial Services Board (BFSB)–a quasi-public organization that promotes the industry–made several trade and promotion missions to key international markets such as Brazil and China. The high-level delegations presented the benefits of investing in The Bahamas to attendees at conferences and seminars in Sao Paulo, Shanghai, Hong Kong and Singapore. Similar missions are planned throughout 2012
Considering these trends, it’s critical that The Bahamas continues to position itself competitively.
“We will be facing very intense competition over the next three to five years, both on an institutional and jurisdictional level,” says Moree. “There will be much more consolidation of IFCs and to survive you will have to be very good. There will be an increased importance on high-end services and those IFCs that can provide the highest level of services are going to be the jurisdictions of choice. We have to be sure we can emphasize our points of differentiation.”
To provide that level of service, skilled personnel must be abundant. The Bahamas has raised a generation of educated professionals and they work primarily in financial services. However, this alone may not be enough to guarantee success.
“We are making major moves to focus education in-line with the needs of the financial services industry. But times are changing. We have been primarily a product provider, but now there is a more level playing field; everyone has the same products. So we have to improve our service offering. We have to become more of a solution-based industry and that means having a greater knowledge of what is happening around the world.”
Moree suggests The Bahamas could use its embassies and consulates around the world to feed information back to a central intelligence unit. This knowledge could then be used in product development and policy making, as well as keeping abreast of any international regulatory reform. This knowledge could instigate rapid response within the industry.
Crosbie-Jones believes that more Bahamians need to be in principal positions within their own businesses in order to use that knowledge to the long-term betterment of the sector and the nation as a whole.
“The Bahamas has done very well at attracting the best international institutions to operate here. We have impeccable names in financial services and we should use that as a springboard from which to broaden the industry. We need more Bahamians with ownership in the sector. These are people who vote in this jurisdiction and have vested interests that are clearly in-line with the development of financial services.”
Bereza agrees: “The larger firms have established The Bahamas as a hub for regional representation and the jurisdiction is seen as an important part of their global offering. They will continue to operate with broadly the same configuration moving forward. However, the interests of larger firms do not necessarily run in the same direction as those of the jurisdiction and we need to consider that as we develop the industry.”
Planning to compete
It’s apparent that the jurisdiction has to develop a strategy that will see it through what is going to be a difficult period in international finance.
Moree proposes sweeping changes, beginning with regulatory reform and the consolidation of the many governing bodies that create and enforce industry guidelines. He hopes that, within five years, The Bahamas will have a much more streamlined regulatory structure, with one single regulator that would be responsible for the entire financial services industry.
Moree also calls for the creation of a flagship financial services ministry, with representation at “the very highest levels of government that can truly champion the sector.
“We need to go back to basics and develop a national plan for the financial services industry and engage in debate where both public and private sectors understand international trends and accept the reality of the new world condition.”
Whether such reform is practical or necessary is for the government and industry players to decide. But what is clear is that the jurisdiction needs to once again respond quickly to what is happening in the global arena as it has done in the past.”
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