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Looking to the future
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Looking to the future
Opportunities for The Bahamas
The last 18 months have seen unprecedented change in the international economic arena, particularly in regard to the future of the offshore environment. To maintain the health of its financial services sector, The Bahamas has to be nimble and flexible to stay ahead of its competitors. It also has to remain diligent in its efforts to comply with more rigorous international standards. So, what does the future hold for The Bahamas’ financial services industry, and how is it coping with the emergence of new regulatory standards?
“When financial services account for roughly 15 per cent of the nation’s gross domestic product [GDP], being proactive in the face of change is not a matter for debate. This industry is critical to our economic stability and our future success,” says Wendy Warren, chief executive officer at the Bahamas Financial Services Board (BFSB). “This is not only the second-largest sector in our country [after tourism] but also the gem of The Bahamas. The continued growth of this industry is critical to our long-term success.”
To this end, the government has laid out a strategy for the financial services sector that it hopes will help cement the jurisdiction’s position as a global offshore financial services centre. “There are challenges for us ahead, and we have to confront those challenges,” says Minister of State in the Ministry of Finance Zhivargo Laing. “We can’t bury our heads in the sand and wish those challenges away. We have to confront them, and we have to confront them head-on.”
Compliance challenge
The first challenge to overcome is compliance. The near collapse of the global banking system last year resulted in renewed efforts by high-tax jurisdictions to enforce a tighter regulatory regime on low-tax jurisdictions such as The Bahamas. The organization for Economic Co-operation and Development (OECD) stipulated that all offshore jurisdictions must have at least 12 Tax Information Exchange Agreements (TIEAs) with OECD member countries to remain compliant with new international tax standards, which came into effect midway through 2009.
The Bahamas, which at the time had signed only one TIEA with the US, was placed on a “grey list” comprising countries that had agreed to the new standards but had not yet signed the required number of agreements. This sparked a flurry of activity at the Bahamian Finance Ministry, and by the end of last year, The Bahamas had signed, or was in the process of signing, the requisite number of TIEAs, including ones with the UK and Monaco.
The move was essential for the sector’s continued success. “People don’t want to deal with jurisdictions that are trying to figure out whether they are complying,” says Warren. “Their reputation is tied to our reputation, so compliance is critical.”
Laing agrees: “The largest challenges facing the sector have been with the efforts made by The Group of Twenty (G-20) Finance Ministers and Central Bank Governors and with OECD member countries pressing the standard toward TIEAs. This has meant a profound paradigm shift in the way that we conduct business here. But we have committed ourselves to the standard and believe there is now a level playing field, more level than it has ever been before in this regard. “Consequently, we have already signed, or are pursuing, TIEAs with a number of countries to meet the standard.”
Competitive streak
A level playing field, however, implies increased competition. To keep ahead of its rivals, the jurisdiction’s financial services industry needs to be efficient and attractive in the quality and range of its offerings.
“For The Bahamas to continue to be a globally competitive jurisdiction for private wealth management, a jurisdiction for capital investment into the Americas and emerging markets and a premier place of residency for high-net-worth individuals, we have to have commitment,” says Laing. “We have to aim to provide superior legal, fiscal and regulatory services. We have to aim to be one of the top three jurisdictions in the western hemisphere.”
With this in mind, the government has put in place a series of initiatives intended to position The Bahamas ahead of its competitors in terms of the quality of its services, whilst simultaneously providing a platform upon which a wider variety of services can develop.
On the administrative side, reforms have been introduced to increase the efficiency of the registrar general’s office. At the same time, a College of The Bahamas survey measured public opinion and identified weaknesses within other public offices. As a result, a public service improvement programme has been put into action across six different agencies of the government. CARTAC (Caribbean Regional Technical Assistance Centre)–a regional organization that provides technical assistance and training in core areas of economic and financial management–has taken these agencies through a training course to improve service and devise an action plan for future development.
The government has also been in partnership with IBM on a $1 million overhaul of the government’s information technology network. This will establish a single portal for online services that was expected to go live towards the middle of this year. “We will have a state-of-the-art government-wide area network, and that’s important because it provides for us the opportunity to put in place the kind of provisions that allow the public to transact business online to a greater extent,” says Laing.
“The goal for us is to produce a jurisdiction that wows our clientele. And that means having a holistic approach to the ‘wowing’ experience,” continues Laing. “It means minimizing risk, effort, time and cost for our clients, whether those clients are private wealth managers, regional capital investors or foreign direct investors. Everybody who has any contact with The Bahamas–from the person who approaches the immigration desk to the person trying to get a business licence or who needs an attorney or accountant or bank in this country–has to leave here saying that it was the most efficient, pleasant business experience they have ever had anywhere in the world. It is a tall order, but that is what we have to seek to do.”
Legislative change
On the legislative side, the government is hoping to entice new business by establishing a legal framework that nurtures development in areas that have previously been overlooked or undervalued.
The recently enacted External Insurance Act, for example, has been specifically designed to boost activity in the area of international insurance, which has performed relatively poorly in The Bahamas since the Cayman Islands staked a claim to that sector more than two decades ago. Laing hopes that bringing in international talent with contacts in the insurance field will help grow the sector now that legislation is in place.
There are also opportunities arising in international arbitration with the enactment of a new Arbitration Centre Law, while efforts are also being made to overhaul the aviation registry and yacht registry–both of which complement the lifestyles of The Bahamas’ high-net-worth clientele.
The government is also in the process of creating, by way of legislation, the Bahamas Financial Services Authority (BFSA), which will have statutory autonomy and reflect the operations of the Securities Commission and the Insurance Commission and will also absorb the responsibilities of the compliance commission. Either a chief executive officer or a director will be responsible for the BFSA, and it will operate as a single organization with an authorizing department a surveyors’ department and an inspection department. Regulatory provisions of the insurance, financial and corporate service providers will be included in the new Bahamas Financial Services Act.
According to Laing, the administrative reforms and the legislative changes go hand in hand. “One of the things we have to do when looking at these opportunities is to see them in an integrated fashion,” he says. “In many ways these play off each other, with one giving rise to the other. If we seize these opportunities and we take advantage of them, we provide growth in an area where we have opportunity, and we grow new opportunities in the financial services area.”
All these efforts are aimed at setting the jurisdiction ahead of its rivals, continuing to enhance The Bahamas’ brand. “If we are not growing, somebody else is growing to our detriment,” says Warren. “Brand building is critical, as is differentiation. It is essential to move quickly to sustain our position in the market.”
Laing concludes with a rallying call to the industry: “In the future we have to be efficient, efficient, efficient. We have to execute, execute, execute. We must never let up. We have to press forward, because failure is not an option for us.”
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