Sir Trevor Carmichael examines how Barbados remains at the forefront of the financial services sector having weathered the economic storm.
During 2014, Barbados again produced strong evidence of the underlying strength of its financial system.
All of the financial stability indicators and stress tests performed for the financial system strongly indicate that the system remains stable with the capacity to withstand a wide variety of severe economic shocks. It is generally accepted that simplicity of the employed business models, strong parent companies, the presence of robust capital accumulation buffers and, in the case of the insurance industry, the presence of substantial reinsurance assets all contributed to this strong financial system.
Commercial banks continue to be the dominant sub-group in the domestic financial environment. They account for approximately 61 per cent of financial assets. Banks have maintained strong lending to individuals, although business lending has remained static, representing a variety of causes as well as more careful business planning and less bank borrowing. Credit unions with their strong role in individual lending have enjoyed an increase share of total domestic assets of 11 per cent, as their loans to members continue to expand from year to year.
The total assets of the financial system collectively grew 2.3 per cent year on average since the global recession reaching US$16 billion in September 2014, and was equivalent to 185 per cent of the jurisdiction's GDP. The majority of the growth has been fuelled by an expansion in loans, particularly mortgages, and holdings of government securities.
The ongoing confidence in the financial system is enhanced by the Deposit Insurance Corporation, which guarantees each depositor up to US$25,000 on domestic currency accounts. At the end of 2014, over 90 per cent of qualified accounts in the Barbadian banking system were fully covered in the event of an institution's collapse. The fund has showed steady growth since its inception in 2007 and is currently valued at US$46 million.
Within this sound internal framework, policymakers have continued in their efforts to further strengthen the international financial services with the introduction of new and streamlined legislation and policies. The major pieces of recent new enabling legislation are to be found in the following: the Income Tax Amendment Act, the Electronic Filing Act; the Corporate (Miscellaneous Provisions) Act and the Corporate and Trust Service Providers Act. All of the legislation seeks to be a blend of up to date best practice regulation combined with provisions of an internationally marketable quality.
As regards the Corporate and Trust Service Providers Act, there is an explicit procedure set out for the licensing of service providers. Furthermore, the duties of service providers are spelled out particularly in areas such as conflicts of interest, handling of client funds, advertising, as well as maintenance of records. There is a school of thought that some of the provisions are too draconian, but the contrary view is that should there be evidence that regulatory powers are being exercised harshly - albeit seemingly within the parameters of the legislation - than either administrative fiat, court sanction or moral suasion would, on the contrary, hold sway.
In relation to the Corporate Miscellaneous Provisions legislation, efforts have also been made to provide greater regulatory rigour to companies established in Barbados. It is now clearly the law that the beneficial ownership of companies must be disclosed at the Companies Registry on an annual return. With good reason, such filings will not apply to entities set up under the jurisdiction's incentive legislation and any other entity which the relevant Minister may by Order designate. The legislation further advances the scope and procedure for dissolution and liquidation of companies; as well as the modern interface of corporate legislation with the use of electronic data within the terms of Barbados' updated Evidence Act.
Consistent with this recognition of the new technologies, are the provisions in the proposed Electronic Filing Act, which provide for forms and documents to be electronically filed with the Registrar of Companies in respect of a legal person or entity. This very useful legislation will also be supplemented by regulations as they become necessary.
Utilising its position as a tax treaty jurisdiction, efforts were also made to increase benefits with the amended income tax legislation. For, there is now inclusion of a provision of product warranty services among the range of services in respect of which a person may obtain a tax credit for foreign currency earnings.
The efforts to match increased revenues with the provision of enhanced services is also at the forefront of recent developments in the area of the development of alternative dispute possibilities. Barbados has both domestic and international arbitration legislation. While the former is in need of updating and review, the latter in the form of the International Arbitration Act 2008 is derived primarily from the United Nations Commission on International Trade Law (UNCITRAL) Model Law. It provides an excellent platform for the development of arbitration within commercial disputes. Building on the presence of this new legislation, together with a growing interest as well as legislative encouragement in mediation, the climate in Barbados is fresh for new directions in alternative dispute resolution. New legislation is under consideration and feasibility work has been undertaken which seeks to place Barbados as a venue where international and local dispute resolution becomes reality.
Overall Economic Performance
The Central Bank of Barbados released its fourth quarter report on the jurisdiction's economy for 2014, indicating that it remains in recession.
According to the report, fiscal consolidation measures are, however, beginning to take effect with the foreign reserves reverting to the normal pattern observed in 2010, 2011 and 2012. The stock of reserves at the end of December 2014 represented 14.5 weeks of import cover. Furthermore, tourism value added increased by one per cent, which is an indication of a reversal of the downward trend experienced in the last three years. Long stay visitors increased by one per cent. Equally, overall economic activity is estimated to have improved by 0.3 per cent for the period under review with marginal contributions from the construction, tourism, manufacturing and solar generation capacity.
At the end of October 2014 the moving average of inflation was 1.7 per cent. The average annual rate of unemployment was 12.5 per cent at the end of September 2014.
The decline in fuel prices at the latter part of the year has seen a positive impact on the cost of electricity with significant reductions in the cost of energy. Real estate purchases by private inflows totalled US$240 million from non-residents. At the end of 2014, the net public sector debt to GDP stood at 73 per cent as compared to 67 per cent in the prior year. The economy is expected to grow by about two per cent in 2015 mainly as a result of tourism, construction activity and spin-off effects from the other sectors. The main foreign exchange earner, tourism, is expected to benefit during November to March from increased airlift emanating out of the UK, the US and Canada. It is expected to increase by as much as 30 per cent during 2015.
Barbados has continued to strengthen the framework of international cooperation for its International Business and financial Services (IBFS) despite the challenging global economic landscape. In November 2014, Barbados like many other jurisdictions has signed an agreement with the Government of the United States of America to improve international tax compliance and to implement FATCA. In addition, Double Taxation Agreements (DTA) between Barbados, Singapore, Malta as well as Tax Information Exchange Agreements with Denmark, Greenland and Faroe Islands came into force in 2014. Barbados also recently signed a new DTA with Rwanda.
In essence, Barbados continues to mix its time tested strengths of economic and financial resilience together with legislative imagination. Together it all represents a conglomerate of validated systems.
Sir Trevor Carmichael QC
Sir Trevor Carmichael, KA,LVO,QC. was born in Barbados and educated at Harrison College and the University of the West Indies, Mona, Jamaica. After pursuing post graduate studies in the United States, he was called to the United Kingdom Bar as a member of the Middle Temple in London and the Barbados Bar in December of 1977. He is a member of the International Bar Association, the Inter-American Bar Association and a Committee Member of the Inter-American Bar Foundation as well as an associate member of the Canadian Bar Association. He holds membership in the International Tax Planning Association, the International Fiscal Association and was one of the parties responsible for establishing a Barbados Chapter of the International Fiscal Association of which he is Charter President. He is the Barbados Country Chairman of the International Litigation Committee on Business Law of the International Bar Association and a former Deputy Secretary General of the International Bar Association. He is a Life Fellow of the Institute for Advanced Legal Studies in the United Kingdom, a Life Member of the Commonwealth Magistrates and Judges Association and a member of the International Law Association.