Bahamas gets rid of red tape
WHAT-TO-DO - NASSAU, CABLE BEACH & PARADISE ISLAND - JULY 2004
Bahamas gets rid of red tape
Streamlines investment process
We are replacing red tape with a welcoming red carpet. The Bahamas is open for business,? says Allyson Maynard Gibson, Minister of Financial Services and Investments.
This pro-investor attitude marks a new approach by government to transform the Bahamas financial services sector into a more streamlined and efficient industry, able to compete with the top offshore jurisdictions. New products and changes in legislation are designed to make investing faster and easier than ever before.
The Bahamas is a mature financial centre, offering a stable democratic environment, relief from personal and corporate income taxes, timely reparation of corporate profits and proximity to the US, with extensive air and communications links.
In addition, The Bahamas has an outstanding infrastructure for commercial and industrial activity and a highly skilled workforce of accountants, investment specialists and experienced law firms.
Progressive legislation
A new Investment Fund Act was passed in December 2003 to address a sizeable increase in the investment funds business. The new Act puts the regulatory structure in The Bahamas among the leaders of investment fund administration.
The Act, which replaces the Mutual Funds Act and Regulations of 1995, modernizes the general legislative and supervisory environment and provides greater market efficiency, transparency and investor protection. It was designed primarily to strengthen the regulatory powers of the Securities Commission of The Bahamas. In addition, the legislation updates the definitions and classes of funds recognized locally.
An international centre
?The funds industry has become a major growth area in The Bahamas? financial services over the past decade,? says Maynard Gibson. ?Consequently, the country has developed into a major international centre for investment funds.? She notes that the new Act fulfills the need to develop a risk-based system of regulation, and to remove certain weaknesses in oversight. In sum, the Act strikes a reasonable balance between regulatory and market interests, offering a strong, attractive and fertile platform for the further development and expansion of investment funds business within the financial services sector.
Equally important, from a competitive standpoint, the Act creates an innovative new style of fund, known as the SMART Fund, acronym for Specific Mandate Alternative Regulatory Test Fund.
?Clever? and ?unique? have been some of the opinions voiced about the fund. And, of course, David Thain couldn?t agree more. Thain is general manager of Arner Bank and Trust (Bahamas) Ltd and creator of the SMART Fund, which introduces four categories of investment funds. The others are the Professional Fund, being offered to accredited investors only; the Standard Fund, offered to the general public; and a Recognized Foreign Fund. But it is the SMART Fund that is generating the most interest.
A new approach to funds
Thain says SMART is a new fund approach. It is a different use for investment funds but doesn?t weaken the quality of the supervision of the investment fund sector.
He explains how SMART Fund applicants, especially if they had gone through a licensing routine in other jurisdictions, could be pleasantly surprised. Typically, applicants must show that their funds qualify to be licensed because they meet certain criteria for that class of fund, as laid out in legislation. In some cases, the requirements can be quite restrictive, such as minimum investment and number of investors.
?The SMART Fund doesn?t do that,? Thain says. ?Instead, it declares the regulator in The Bahamas will entertain applications for a SMART Fund licence without pre-defining what the criteria will be for that licence.? The Securities Commission then has greater latitude in licensing when it comes to creating new funds.
Fast and flexible
The streamlining of the licensing process in The Bahamas is a major plus, claims Thain. ?For example, in the Cayman Islands all funds must be licensed by the regulator.? Here in The Bahamas, the Securities Commission now permits that job to be handled by a licensed fund administrator. This takes one of the parties out of the loop, which can save the client significant time in coping with bureaucracy.
The SMART Fund undoubtedly offers flexibility. The industry can be highly creative in thinking up uses for investment funds, which, in the past, often died on the drawing board because of requirements that were too restrictive. Today, if a proposed fund gets a green light from the Bahamas Securities Commission, the Commission will issue a SMART Fund template outlining the parameters under which the fund will operate. Once a template has been approved, the 43 unrestricted fund administrators based in The Bahamas are able to issue licences for new funds based on the approved SMART Fund model.
Whatever the future holds for the SMART Fund, Thain is among those who believe that other jurisdictions are getting the word about an exciting new style of investment fund in the competitive mix ? and The Bahamas has got it.
Captive insurance
The Bahamas also has a new approach to captive insurance. Thanks to amendments in the International Business Companies (IBCs) Act, The Bahamas? captive insurers have hopes of escaping from years of less-than-robust business.
The changes, finalized in February 2004, permit IBCs to be incorporated as external (captive) insurance companies, subject to obtaining the requisite licence. If all goes well, at least one executive ? Martin Eveleigh ? sees an almost immediate doubling of the annual number of captive formations in The Bahamas over the next couple of years.
Eveleigh is managing director of Atlas Management, an underwriting manager formed as a joint venture with Britannia Consulting Group. His optimism for increased business does have a caveat. ?Above all, the public sector must process applications more quickly than before? he says. ?The government claims it can now turn around an application in four weeks? time.?
He labels the new legislation as ?something that shows the marketplace The Bahamas is serious about what we?re doing in the captive sector. It indicates we?re up-to-date.?
No more red tape
Now that Atlas Management and other captive insurers in The Bahamas can operate as IBCs rather than domestic companies, they have a major selling point, namely the elimination of red tape.
And then, of course, there are the fees. Compared to Bermuda and the Cayman Islands, The Bahamas is a more cost-effective place to establish a captive, says Eveleigh. He claims annual government fees in Cayman, for example, are US$7,000.
Eveleigh is adamant in predicting that if the public sector responds properly, captives in The Bahamas could make a much bigger blip on the radar screen. ?I?m sure the government is fully aware of the great potential of this business,? he says. ?The IBC amendments demonstrate that.?
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