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23/01/24
The Bahamas: A Financial Centre Built To Last
While The Bahamas confronts forward and rearguard actions by G7 and other international bodies that threaten to impede its sustainability as a financial centre, the jurisdiction continues to persevere and move ahead, unperturbed by these efforts, committed to remaining compliant whilst focused on delivering exceptional service and bespoke client solutions. It has been more than twenty years since the heavyweights of the world’s economic order began to impose rules that pose an existential threat to core elements of the economies of developing countries such as The Bahamas. Some of these actions were admittedly required. However, uniform global implementation and imposition of consequences for failing to comply remained uneven, with small developing states feeling most of the pressure. Nonetheless, The Bahamas with its limited resources, makes every effort to meet these standards. It can now boast of being one of very few countries in the world to be compliant or largely compliant with all forty Recommendations of the Financial Action Task Force.
The Bahamas offers a comprehensive range of private wealth management options and is particularly well regarded and respected for its robust and cutting-edge trust legislation. The advantages of placing assets into a Bahamian trust have long been known to individuals from many parts of the world, including those who are looking for a stable environment to protect their wealth from political instability, arbitrary legal and fiscal surroundings or other forms of coercion.
A Preeminent Jurisdiction For Wealth Management & Structuring Plans
The first trust company established in The Bahamas in 1936 was The Bahamas General Trust Company Ltd, which is now known as Société Générale Private Banking (Bahamas) Ltd. Eighty-seven years later, The Bahamas continues to be widely regarded as a leader in trusts and wealth management solutions. Many of the world’s renowned financial institutions have well established presence in The Bahamas, taking advantage of the country’s stable political and economic systems, reliable business infrastructures, a legal profession and judiciary that are very familiar with complex issues relating to wealth management structures, and critical proximity to key markets in North and Latin America.
Looking forward to the future, The Bahamas aims to become a hallmark of seamless inter-generational estate planning through effective trust and financial services legislation such as:
1. The Arbitration (Amendment) Act 2023.
2. The International Commercial Arbitration Act 2023.
3. Fraudulent Dispositions Act (1991).
4. Trustee Act (1998).
5. Banks & Trust Companies Regulation Act (2000).
6. Purpose Trust Act (2004).
7. Banks & Trust Companies (Private Trust Companies) Regulations (2007).
8. Commercial Entities (Substance Requirements) Act 2018.
9. Investment Funds Act (2019).
10. Banks & Trust Companies Act (2000, 2020).
11. Financial and Corporate Service Providers Act (2000, 2020).
12. Digital Assets and Registered Exchanges Act (2020, 2023; DARE Act).
According to Paul Winder, Global Head of Wealth Planning at Deltec Bank & Trust Limited: “At the heart of all this legislation remains just that: Investor protection, investor growth, sustainability”.
“The Bahamas ensures compliance with international standards, whether with economic substance, exchange of tax-related information, or managing an asset class wholly new to the age-old realm of financial services. Therefore, this island nation also upholds the highest expectations when fighting against money laundering, terrorist financing, and other known risks seeking to combat financial crime. That is why the Financial Action Task Force (FATF) has deemed The Bahamas as being compliant or largely compliant in 38 out of 40 of its standards”.
The robust nature and strength of Bahamian trust legislation is not just apparent in common law jurisdictions, according to Wendy Warren, CEO, Caystone Solutions. She noted that “historically, trusts always have been a foreign concept to civil law countries in the LATAM region. In our conversations with wealthy individuals and families, there is a growing appreciation and acceptance that trusts provide solutions worthy of the difficulties and unease caused by, but not withstanding the experiences of willingly giving ownership of assets to a company whose owners, directors and managers can change at any time”.
Highlighting the diversity of The Bahamas’ offerings, Ms Warren noted that “another alternative for an individual from a civil law country, is a Private Trust Company (PTC), which may be the ideal solution on a number of different levels, including control, influence, privacy, continuity, flexibility, education and empowerment, and cost efficiency. Finally, in all planning, we see the Bahamas Executive Entity (BEE) being used and considered more actively. The advantage of the BEE lies in its ability to remove unnecessary layers of ownership at the top level of wealth structures, to concentrate control in the right people who have the assurance of limited liability, and to generally facilitate proper governance within the structure to avoid the risk of family conflict damaging the family wealth”.
Key Developments And Latest Trends In Banking & Finance
With the worst of the COVID-19 pandemic and related restrictions firmly in the past, the Baha-mian economy has continued to recover over the last 12 months, primarily due to strong per-formance in the tourism sector, which some are referring to as “revenge tourism”. In the Monthly Economic and Financial Developments Report for July 2023, the Central Bank of The Baha¬mas indicated that “the growth trajectory of the domestic economy persisted, although at a moderate pace”, and this growth is projected to continue into 2024.
“A number of themes have contin¬ued to dominate the legal and regulatory frame¬work this year relating to financial services in The Baha¬mas,” says Higgs & Johnson’s Christel Sands-Feaste, “including continued focus of policymakers on strengthening public finances, ongoing modernisation of the Bahamian payment system, and the establishment of a new regulatory frame¬work for the digital assets space”.
While not restricted to the financial services sector alone, another important development impacting all Bahamian entities is the recent overhaul of the economic substance legislative framework.
“The recent overhaul of the regulatory framework relating to economic substance has impacted all Bahamian entities, not just those in the finan¬cial services sector,” noted Sands-Feaste. “For background, in accord¬ance with international best practices, in 2018, The Bahamas implemented legislation requiring Bahamian entities engaged in certain activities to establish a substantial economic presence in The Bahamas, and for all Bahamian entities to comply with substance reporting requirements”.
The Bahamas’ Approach To Regulating Digital Assets
The rapid emergence of digital assets and cryptocurrencies has presented many challenges for regulators in the global financial sector. Recognising the need for a robust regulatory framework to bring legal clarity to this dynamic, evolving space, The Bahamas has taken a progressive approach to the regulation of digital assets.
“Crucial to the development of The Bahamas’ regulatory framework was extensive research and evaluation of international regulatory policies, and engagement with policymakers, industry participants, and stakeholders,” said Christina Rolle, Executive Director, Securities Commission of The Bahamas (SCB).
“The DARE Act, 2020 framework was originally benchmarked against legislation from 13 jurisdictions. Careful consideration was given to best practices for activities-based approaches to registration, risk-based regimes for the supervision of digital asset business and related activities, as well as ensuring The Bahamas’ commitment to the global fight against money laundering, terrorism, and proliferation financing”.
The DARE Bill, 2023, builds on the foundation of the DARE Act, 2020, with an even stronger, more comprehensive regulatory framework for digital assets and digital asset businesses. This pioneering legislation establishes a new precedent for current, proactive, and internationally compliant standards and best practices.
“With refined definitions and exclusions, and expanded provisions and requirements, the new Bill demonstrates the commitment by The Bahamas to investor protection while maintaining a regulatory environment that is designed for innovation, development, and responsible growth in the digital asset industry,” said SCB’s Executive Director.
Systemic Trading And Investing
The Bahamas continues to exemplify a forward-looking jurisdiction by capitalising on its assets and advantages while resposonding to global transparison and opportunities. Particularly in the realm of online trading, companies in The Bahamas, such as ActivTrades, have embraced innovative solutions and practices to maintain their global competiveness.
“Investment strategies that are formed through systemic research can help the retail investor make better-informed decisions by considering the broader economic and social context in which companies operate,” said Chris Illing, ActivTrades’ Chief Commercial Officer.
“Systemic research involves analysing the interconnected relationships between different factors such as economic trends, industry performance, market conditions, and government policies. By looking at the larger picture, the educated investor can gain a deeper understanding of the risks and opportunities the different markets and industries face and develop his or her investment strategy.”
“Furthermore, the Bahamas has embraced the digital information-leveraging technology to enhance efficiency, transparency, and security in trading operations,” said Illing. “All major stakeholders are given the opportunity to interact with the Securities Commission of the Bahamas and are encouraged to provide input and feedback. The adoption of blockchain technology, for instance, has facilitated secure transactions and reduced administrative burdens, positioning the Bahamas as a tech-savvy jurisdiction. SCB has implemented conscious policies and initiatives, encouraging trading companies to adopt responsible practices that align with international standards to protect the professional as well as the retail traders”.
Family Offices: Investing Considerations
With the globalisation of families and their businesses, it is often convenient for the Family Office, business headquarters, as well as the legal holding structure, to be in a jurisdiction that provides a suite of products that can meet the diverse needs of multiple family members.
The Bahamas provides a financial infrastructure without comparison, which can support the family office by giving it access to institutional asset management options and first-class service providers, including private banking, which has traditionally been the bedrock of product offerings, funds, trusts, and corporate services. Creating an environment where family offices can operate efficiently has been designated as a key growth area for The Bahamas as families and their advisors have begun to recognise that there is flexibility in the ‘size’ of the family office footprint in The Bahamas.
Family Offices generally take four approaches to investing, according to Dr Iyandra Smith Bryan, Chief Operating Officer, Quantfury Trading Limited.
“While we see family office investments trending upwards in other investing approaches, traditional investing continues to be a mainstay in the arsenal of family offices’ investment officers,” said Dr Bryan.
One of those upward trends is private equity, which provides family offices with the opportunity to take on a more active role, and as a result provides an attractive investment option.
A third investing approach is venture capital.
“Family offices are increasingly favouring venture capital investments, as they have the potential of yielding much higher profits, while the family office can add more value through either the family’s operating business, the family’s network of connections, expertise and qualifications, and mentorship/guidance”.
Investment returns, while critical, are not the only drivers of family office investment strategy, noted Dr. Bryan. “Family offices are increasingly pursuing investment opportunities that line up with their own personal values and with the family office’s virtues,” she said. “Family offices are actively seeking investment opportunities that promote environmental, social, and governance (ESG) principles, and championing more impactful and sustainable investment strategies. ESG investing has become more of a trend as wealth passes from older generations to younger generations. While younger generations continue to value and seek to ensure wealth preservation, they share an increasing interest in how the family’s investments align with global concerns, letting their values guide their investment decisions and evincing a strong commitment towards ethical and impactful investments”.
Climate Finance And Environmental Social Governance
Environmental Social and Governance (ESG) factors are increasingly buzzy terms not only for Family Offices, but in wider investment circles, with real implications for the globe and particularly low-lying countries like The Bahamas. ESG and the regulations that have arisen surrounding it recognise that such factors are additive measures for evaluating an investment or a company, and from a company’s perspective, an important part of managing risk.
The recent coalescing of global disclosure regimes could not have come at a more critical time for The Bahamas, says Aliya Allen, partner with Graham Thompson.
“The Bahamas had big aspirations to lead the dialogue on climate finance regionally and globally,” said Allen. “This had been demonstrated most notably by advancing its legislative framework, introducing the Carbon Market Initiatives Act (supporting The Bahamas’ Sovereign Carbon Credit Program) and the Carbon Trading Act, 2022 (providing a registration framework for carbon exchanges, carbon trading businesses, and carbon registries).”
The Bahamas’ aspirations would undoubtedly have been challenged by the widely publicised news that many carbon offsets are useless for the mitigation of global warming, and the general dip in carbon market pricing which roiled the voluntary carbon markets. Allen asks: “If many of these sustainable investments are the opposite of sustainable, how do we, as a global community, even approach net zero emissions?”
The answer according to her “is in clear rules and regulations and The Bahamas is keen to ensure that its carbon project is validated and verified appropriately”.
“It is now largely indisputable that ESG factors have a material impact on a fund’s investments, and investment managers are perfectly entitled to have a policy on sustainable investments, but these factors should be disclosed to the fund and to investors, and investment policy mandates should be explicit in this respect. Applying an internationally consistent approach would enable investment managers, listed companies, and investment funds to be evaluated by investors on consistent metrics but, most importantly, would be yet another positive step towards net zero.”
Dr. Tanya C McCartney
Dr. Tanya McCartney is a UK trained barrister and chartered banker who since 2016 has served as the CEO and Executive Director at the Bahamas Financial Services Board. Over the past two decades Tanya has distinguished herself as a hardworking professional with expertise in the law, regulatory and gaming compliance, risk management, banking, and international financial services. She holds a Doctor of Business Administration from Edinburgh Napier University (Scotland, U.K.) for a programme of work entitled “Perspectives on Leading change: Exploring Change Readiness Strategies used in the Bahamian Financial Services Sector”.
Tanya was appointed to the Senate of the Commonwealth of the Bahamas in 2001 being one of the youngest persons ever appointed to the Upper House where she served for five years. She vied for a seat in parliament in the 2002 general elections. She is a former President and founding member of the Bahamas Association of Compliance Officers. She is the co-chairman of the Bahamas Chapter of the global Association of Certified Anti-Money Laundering Specialists. Tanya is also an adjunct professor in the School of Business at the University of the Bahamas. She has served on several government boards over the years including The Public Hospital’s Authority, The University of The Bahamas and currently serves as Chairman of The Police Complaints Inspectorate and Deputy Chairman on The Airport Authority.
