Aliya Allen examines recent legislative changes in the Bahamas in 2011 following the passing of 15 financial services related bills.
In 2011, amidst turbulent and uncertain times for economies around the world, The Bahamas, in its characteristically purposeful and thoughtful manner, implemented a raft of legislative amendments aimed at bolstering the competitiveness of the financial services industry.
No less than 15 new financial services related Bills were passed, accomplishing a number of very important objectives:
This package of legislation is one of the clearest and convincing indicators that the government and private sector are resolutely pursuing their shared vision: “To be a globally competitive international business centre for private wealth management, capital investment in the Americas and emerging markets, and residency”.
Leading Innovation in Private Wealth Management
Rule Against Perpetuities Abolished
The Rule Against Perpetuities (Abolition) Act, 2011, removes one of the few remaining obstacles to truly long term dynastic planning for settlors and testators of Bahamian trusts and wills. Under the abolished rule, a future interest under a trust had to vest within a permissible period; if the future interest could vest sometime after the permissible period, courts had wide powers to rule the disposition void.
Amendments to the Perpetuities Act lessened the harshness and complexity of the rule by allowing a trust instrument to specify a defined period of 150 years as an alternative to a period calculated based on the duration of the lives in being at the time of the disposition. However, this did not address the fundamental issue that arose when settlors were unable to provide in an effective way for remote descendants.
Although the rule is not abolished retrospectively, recourse may be had to the court, which is given the power to apply the Act to pre-Act dispositions of property in trust. In addition, as a result of the amendments to the Trustee Act further discussed below, the power to amend a trust deed now includes a power to extend the perpetuity period of existing trusts. This means that settlors who do not immediately wish to approach the Court to apply the Act to existing trusts, may in the interim extend the perpetuity period stated therein.
Settlor Directed Investments & Arbitration of Trust Disputes
The Trustee (Amendment) Act, 2011, further enhances the value proposition of the Bahamas Trustee Act, 1998, by introducing both substantive and minor amendments.
The first of the substantive amendments explicitly confirms that a trustee will not be liable for simply carrying out the directions of a settlor or third party in exercise of an investment power conferred by the trust deed. The advantages of these optional provisions, which must be explicitly referenced in the trust deed to apply, are self-evident - trustees, ever concerned about risk given the volatility of the markets in recent times, may now assume the trustee function absent of any residual responsibility or liability for investment functions. Moreover, these amendments uphold the expectations of the settlor and trustee alike that there is clear delineation between the trustee function and investment function, leaving the person most qualified to manage the investment of the trust fund to do so.
In the realm of trust disputes, the new amendments give the settlor great flexibility in determining how such disputes may be resolved within the parameters of the trust instrument. In recognition of the fact that courts are often not an appropriate place to resolve disputes of such a highly personal and confidential nature, the Act now makes provision for arbitration of trust disputes. The lengthiness and costliness so often associated with litigation may now be avoided, if a settlor so desires.
One key aim of the amendments to the Trustee Act was to clarify the circumstances in which a beneficiary’s interest in a trust may terminate where the trust instrument so provides. It is now clear that if the trust instrument provides for the termination of the interest upon challenge without qualification, any challenge to the validity of the trust, whether brought in good faith or with reasonable cause, will cause the beneficiary’s interest to terminate. This section serves to confirm what a settlor reasonably expects will be the effect of the inclusion of such a clause.
The Bahamas Executive Entity – a new and revolutionary product
The Executive Entity (EE) was created to fulfill a recognised need in wealth planning structures – the problem of who should act as protector, enforcer, investment advisor of a trust or, for that matter, as an office holder of any entity. The EE is the ideal solution.
The EE is a legal entity that has no shareholders or beneficiaries – its sole purpose is to perform ‘executive functions’, defined in the Executive Entities Act, 2011, as powers and duties of an executive, administrative, supervisory, fiduciary and office holding nature.
Some other key attributes of the EE are as follows:
A Clear and Risk-Based Regulatory Regime for Securities
The Securities Industry Act, 2011, repeals and replaces the Securities Industry Act, 1999. The legislation was designed with a view to meeting the standards outlined by the 30 Principles and Objectives of Securities Regulation of the International Organszation of Securities Commissions (IOSCO). The Bahamas, which has been a full member of IOSCO since 1996, is now a Signatory ‘B’ country, and fully expects that IOSCO Signatory ‘A’ status will soon follow as a result of the new and improved regime.
The Act, which will be implemented in stages to allow all registrants a reasonable time to comply with the new requirements, provides for a more flexible legislative structure, simplifies the categories of registration for firms and individuals and adjusts the prospectus circulation requirements to address the circumstances of the offering and not the characteristics of the issuer. The Act not only signifies that The Bahamas is fully committed to fulfilling its IOSCO obligations, but also confirms its ability to be flexible and adaptive to changing market conditions.
Two of the key changes introduced by the SIA, 2011 are:
A Modernised Corporate Insolvency Framework
The amendments to our insolvency framework introduced by the Companies (Winding Up Amendment) Act, 2011, and the International Business Companies (Winding Up Amendment) Act, 2011, fulfill the legitimate expectations of clientele, creditors and counterparties that The Bahamas’ insolvency laws are as modern and comprehensive as any other financial centre.
The new insolvency framework:
Commitment to Compliance with International Standards for Accounting and Record Retention
In September 2009, The Bahamas was elected to membership of the OECD Peer Review Group. A clear indication of the good reputation that the Bahamas enjoys in international circles was the selection of Bahamian Prime Minister The Hon. Hubert Ingraham to chair the Boards of Governors of the International Monetary Fund and World Bank Group.
The 2011 Peer Reviews assessed Phase 1 elements for the adequacy of jurisdictions’ legal and regulatory frameworks for availability of, access to and exchange of information. The Bahamas' legal and regulatory system for effective tax cooperation was found to be fully compliant with all elements of the Global Forum's standards with the exception of one.
To address this single recommendation, legislation has been introduced to ensure that proper accounting records are maintained by entities incorporated or registered in The Bahamas and that such records are kept for a minimum of five years.
A reasonable period of time will be provided before these pieces of legislation enter into force, to enable regulators to advise financial services providers and their clients as to the procedures for compliance under the amended laws.
The Bahamas Advantage Reinforced
What should be evident by the sweeping legislative changes is that The Bahamas remains a responsive and innovative jurisdiction committed to increasing its value proposition to clients. The Bahamas understands that the new global economic reality requires a consistent commitment to improvement of our platform for owners of capital and we are ever confident that The Bahamas is more than up to the task of delivering top tier services to an increasingly sophisticated clientele.
The Bahamas’ expansive history in financial services has created and fostered confidence in the experience and expertise of the thousands of dedicated professionals in the industry. This experience and expertise is no more evident than in the comprehensive and focused consultative process that preceded the introduction of this new legislative package.
2011 was a time for great reflection and change for the world - and The Bahamas was no exception. At the dawn of 2012, The Bahamas is resolute in its belief that it must continue to embrace its core ethos as a progressive and responsible jurisdiction.
If 2011 has taught us anything; it is that change is good and necessary.
Partner, Graham Thompson, Bahamas