This publication held a conference in New York recently to discuss issues to do with international financial centers, particularly from the viewpoint of the Bahamas.

The Bahamas is very much open for business and strident at developing new areas of its mature financial services sector, leveraging expertise, displaying grit and resilience after the Hurricane Dorian storms of a few weeks’ ago.

The Bahamas, a democracy and former British colony and independent since 1973, has English Common Law with established trust and corporate solutions in place that are familiar to wealth management clients and practitioners worldwide. Those, and other qualities speak to its stability warranting an even louder hearing, attendees at a breakfast briefing event in New York City were informed recently. 

The breakfast briefing also coincided with release of IFC World 2019, a global overview of the world’s international financial centers, produced by Family Wealth Report’s publisher. (See also a report about the Bahamas by this news service earlier in the year.)

Bringing opening remarks at the exclusive briefing was The Hon. Elsworth N Johnson, Minister of Financial Services, Trade and Industry and Immigration. Johnson spoke of how the jurisdiction has been fully functioning, in spite of the challenges of the hurricane damage in parts of the chain of islands. He noted that this demonstrated the “resilience, the enterprise and the commitment of Bahamians”. About 20,000 people work in financial services, a sector that accounts for around 15 per cent of its gross domestic product, Minister Johnson noted. He informed delegates at the event of the fact that the financial center continues to keep up with latest developments in global regulation and financial services, including areas such as financial technology.

In the keynote address, Andrew P Morriss, dean, School of Innovation and vice president for Entrepreneurship and Economic Development, Texas A&M University, outlined the evolution of the Bahamian financial services industry. He discussed three eras, as he characterized them, for the Bahamas’ development as a financial center during the 20th century and into the present. 

In the first era, marked by global capital controls, foreign exchange regulations and the rise of an offshore dollar market, The Bahamas, along with places such as Curacao, benefited from its offshore status. With its English Common Law and connections to the UK, the jurisdiction thrived and was able to capitalize on its flexibility, contrasting with those French territories that came under the same regulatory regime as mainland France, Morriss said. 

The second era saw The Bahamas move higher up the value chain in terms of the services offered there, with greater sophistication in services and solutions. The 1960s and 1970s were decades when major countries tried to make it tougher for offshore centers to operate; tax laws were tightened. In the third era, international efforts to squeeze IFCs intensified, as seen with the arrival of the Common Reporting Standard, pushing for more beneficial ownership disclosure. A net effect of such moves has been to raise barriers to entry into the IFC space. The potential for newer jurisdictions to become IFCs has become more difficult, Morriss said.

The Bahamas, like so many other international financial centers, have had to adapt to demands for ever-greater transparency, exchange of information and a broader range of services, he noted in his keynote address to the briefing. 

Professor Morriss said that there was a legitimate and essential role for IFCs such as the Bahamas in the global economy. He referred to this essential element as “fictioneering” – the idea of how offshore centers, with their legal innovations and adaptability, take out some of the frictional costs posed by overlapping global regulations and uneven tax regimes.
 

Panel discussion
A group of Bahamas-based financial services practitioners took a deep dive into new developments affecting the financial services sector - including examining the regulatory environment, the toolkit available to practitioners inclusive of fiduciary services and investment funds, as well as growing areas such as blockchain distributed ledger technology and fintech. The theme focused on the crucial value proposition that The Bahamas brings as an international financial center.

Stephen Harris, CEO of ClearView Financial Media acted as moderator. The panelist’s were Michelle Neville-Clarke, partner at Lennox Paton; Linda Beidler-D’Aguilar, partner at Glinton Sweeting O’Brien; Sarah Packington, partner at Graham Thompson, and Christina Rolle, executive director, Securities Commission of The Bahamas. They all confirmed that the financial center was open for business and that Nassau, the hub for activity, was unaffected by Hurricane Dorian. Hence, the capital is leading the charge as it relates to relief and restoration efforts.

Family offices and substance
One subject that arose was how the IFC caters to family offices as a distinct client type. Beidler-D’Aguilar said that whether family offices were located onshore or offshore, their reporting requirements are increasing. There is a requirement for rigorous governance procedures, creating an opportunity for those countries such as the Bahamas who seek to attract family office business.

It’s going to be essential to demonstrate that it [a family office] is not just a filing cabinet with a name on it,” she said, referring to how requirements for business substance were increasing. The new substance requirements in the Bahamas and the availability of expertise and infrastructure to support the work of family offices make the Bahamas attractive, she noted.

Rolle said that family offices, such as multi-family offices, increasingly seek a secure and robust regulatory environment; family offices can be licensed in different ways in The Bahamas, as corporate entities, or as investment advisors, for example. She said The Bahamas is considering the idea of an explicit new license structure for family offices. 

Packington emphasized the considerable resources and expertise in The Bahamas when it came to organizations such as family offices, and others. “We have best-in-class regulation,” she said. For example, family offices in the IFC can cover all tasks from “bill paying the bills in the morning to walking a dog in the afternoon”. 

Rolle stressed how The Bahamas has signed up to the full range of international laws and requirements concerning anti-terrorism finance legislation, proceeds of crime controls, and has worked with jurisdictions to share and exchange information. (The Bahamas signed up to the Common Reporting Standard in June 2017.) 

Panelists noted how The Bahamas, as a relatively small place, has the freedom to introduce and adjust its legal and regulatory regime rapidly, enabling it to respond to new trends and client demands. For example, Rolle said that the jurisdiction passed a new investment funds act this year, taking account of some identified deficiencies in existing legislation. Neville-Clarke agreed, but pointed out that one benefit of the new rules is that they did not discard some of the original, simple regulatory principles. “We were able to save what we loved and add other elements too,” she said. 

The event was presented by the publisher of this news service in conjunction with the Bahamas Financial Services Board. Sponsors of the gathering of Bahamian financial professionals, government officials, and the jurisdiction’s regulators were the Bahamas Financial Services Board, Glinton Sweeting O’Brien; Graham Thomson Attorneys, Higgs & Johnson, Lennox Paton; McKinney Bancroft & Hughes, and Government of the Bahamas Ministry of Finance.