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Staying competitive
A new era for financial services
A buzzword in the offshore financial services sector for the last couple of years has been “compliance.” Jurisdictions have had to move quickly to ensure that they do not fall foul of rapidly changing parameters for business, as the world’s richest and most powerful nations look to knowing ever more about the financial activities of their citizens.
Although tighter scrutiny and increased regulations have traditionally been regarded as death knells to wealth generation in the offshore, The Bahamas has been working hard to reposition itself in the global arena and prove that, if you are nimble enough, there are opportunities arising in this brave new world.
Tax agreements
Central to international compliance initiatives has been an enthusiastic promotion by the Organisation of Economic Co-operation and Development (OECD) of tax information exchange agreements (TIEAs) between member nations and countries with low-tax or no-tax regimes. The organization required offshore jurisdictions to sign a minimum of 12 such agreements or risk being placed on a list of non-compliant nations.
All TIEAs follow the same basic template, which contains provisions allowing governments to request information on the overseas financial activities of their citizens. However, there are strict protocols to prevent “fishing” expeditions.
For many years The Bahamas resisted pressure to sign such agreements, fearing that it was being unfairly singled out to launch a potentially intrusive precedent. “The Bahamas should be commended for communicating, over three different administrations that, although it was willing and ready to comply with international standards, it would only do so when they had become truly international standards and were applied across the board,” says Wendy Warren, Bahamas Financial Services Board chief executive officer.
That time, however, came in 2008, when, with the global financial crisis and the election of a new US president, the European powers found the political will to achieve a consensus on efforts to get greater transparency on the exchange of tax information.
“At the G20 summit [in 2008], they agreed on two things: the need for massive fiscal stimulus, and that offshore jurisdictions represented a significant leak of tax revenue for these countries and they were now prepared to do something about it,” says Minister of State in the Ministry of Finance Zhivargo Laing. “For the first time, there was a consensus between the richest and most powerful countries of the world that if nations did not comply, then they would suffer sanctions.”
As a consequence, The Bahamas embarked on a campaign of feverish diplomatic activity and has now signed 22 TIEAs, ushering in a new age in financial services.
“The signing of the TIEAs is an important landmark event in our industry,” confirms Warren. “Not so much because of the nature of the agreements, but regarding The Bahamas now being able to say it is completely compliant with international standards, whilst never compromising the trust of its clients.
“It allows The Bahamas to lift itself out of the pigeonhole in which the rest of the world was intent on putting it.”
New opportunities
The industry has been eager to move on ways to capitalize on any new opportunities that may have arisen following this period of cross-border cooperation, confident now that the jurisdiction is perceived favourably in terms of compliance among the international finance community. The TIEA signed with Canada, for example, offers certain incentives to doing business with The Bahamas, and strides are being taken to develop relationships with high-net-worth individuals in that country. The same can be said of Latin America, where recent developments in asset management have opened the door to potential increases in business.
A multilateral memorandum of understanding agreement with the International Organization of Securities Commissions (ISOCO), is another agreement that “will allow The Bahamas to engage with countries in ways that it may not have been able to do previously,” according to Warren.
There are also several pieces of local legislation already approved by the Cabinet, such as the Securities Industry Act, which provides a number of rules and regulations to respond to changes in the marketplace. There are amendments to the Trustee Act, which modernize this industry-leading legislation, and major steps are being taken in the insurance field, especially to develop the captive insurance market.
“We have recently passed into law the new External Insurance Act, which was a major move in encouraging growth in that sector,” adds Minister Laing. “There are also opportunities in arbitration, with the enactment of a new Arbitration Centre Law.”
All these moves mark a commitment to advancing the jurisdiction’s legislative framework to maintain a competitive edge.
Client needs
Keeping legislation relevant and responding to client needs in a timely manner are key to the success of the financial services sector. This is true more so now than ever as, amid enhanced scrutiny, a greater number of clients are seeking more sophisticated structures to protect their wealth for future generations.
“Traditionally, our clients are high-net-worth individuals of generally middle to mature age–old money from the post World War Two baby boomers,” says Jean-Marc Fellay, deputy resident manager at Julius Baer Bank & Trust (Bahamas) Ltd. “Many of them are reaching retirement age, in the succession planning phase, and are increasingly introducing their children and heirs to us.”
To cater to this trend, the industry is looking to create a new executive entity for trusts, which would be a legal entity designed to meet the increased need for dynastic planning by clients and protect the integrity of the settlor’s original intentions during the life cycle of a trust, as it passes through generations. This would represent an entirely new structure, one that would be unique to The Bahamas.
Antoine Candiotti, chief executive officer at Crédit Agricole Suisse (Bahamas) Ltd, adds that this type of innovation is essential to wealth management. “You have to consider the customer’s objectives. For example, is the client accumulating retirement money, or is the client looking to grow capital to make some acquisitions later on? Is the client willing to take a risk, or do they want to preserve their wealth for the next generation or even the one after? In this case, the time horizon is much longer. The whole story is to balance all these elements.” Having an array of structures available gives wealth managers more options for growing or protecting their client’s interests.
Warren believes that The Bahamas is remaining flexible enough to stay ahead of the competition and offer financial services providers the right tools to do business. “We have to stay focused on building and refining The Bahamas to create the environment for businesses to operate here successfully,” she says. “If we do that as a country–government, regulators and associations, as well as the private sector–the industry’s future is bright, but we have to think through the various obstacles and ultimately understand what it is our clients want.”
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Staying competitive
A new era for financial services
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