Private Banking – A Bahamian Specialty

The Bahamas is today the leading financial center of the Caribbean for private banking. No other jurisdiction in the region can boast the number of prestigious financial institutions registered in the country. This dominant position has been built over the last century by creating an extremely favourable environment for the development of financial services.

The history of The Bahamas with international banking dates back to 1908 when the Royal Bank of Canada became the first foreign bank to establish a branch in downtown Nassau. However, it was not until 47 years later with the Banking Act of 1965, that The Bahamas transformed itself into a world banking powerhouse, by attracting some of the biggest names in the private banking arena. The country became the destination of choice, especially for Swiss banks that brought with them their expertise in wealth management.

Of course it was not only the country’s legislation and regulatory structure which attracted these banks, but a series of characteristics that made The Bahamas stand out from other jurisdictions. The geography played an important role with the proximity to Miami and its location in the same time zone as New York. So did the attractive tax neutral regime with the absence of taxes on income, profits, capital gains or inheritance, and the free movement of capital. Finally, the stability of government, the absence of political violence and the country’s independence in 1973, also further contributed to the attractiveness of The Bahamas.

Along the growth of the banking sector, auxiliary services soon became available to cater to the needs of clients to structure their wealth and for succession planning. The Bahamian financial sector always sought to provide banking clients the best products and services, and the government ensured that cutting edge legislation was always in place.

As a result The Bahamas also became a major jurisdiction for the set-up and administration of trusts with several pieces of legislation that were passed to better serve the needs of settlors and beneficiaries. For example, the Trust (Choice of Governing Law) Act 1989 serves to ensure that Bahamian Law will apply notwithstanding the fact that a trust may have a foreign Settlor or beneficiary, and the Fraudulent Dispositions Act 1991, serves to protect assets from future creditors.

Other products were also established such as international business companies, foundations, private trusts and the SMART funds, the most innovative vehicles on the market for collective investments. Most recently, the sophisticated Investment Condominium (ICON) that provides an alternative legal structure for investment funds, has been well received in Latin America.

Paramount to the country’s well regarded private banking industry is the role of the Central Bank of The Bahamas. With more than 250 banks and trust companies operating in the jurisdiction, and the banking industry itself the cornerstone of the country’s financial services industry, the Central Bank plays a lead role among the country’s regulatory agencies and enjoys full autonomy. Its stature within The Bahamas is reinforced by its longstanding presence in the jurisdiction.

The Central Bank promotes the soundness of banks and trust companies through the effective application of international regulatory and supervisory standards. This was put to the test during the US financial crisis, and unlike other jurisdictions no bank in The Bahamas failed or had to be bailed out.

Independent asset managers providing discretionary portfolio management and advisory services are also present in The Bahamas, especially since the turn of the century. There are now over 80 firms registered with the Securities Commission of The Bahamas. This IOSCO ‘A’ rated regulator was established in 1995 to provide for the supervision and regulation of the activities of investment funds, the securities industry and capital markets.

In many ways private banking in The Bahamas has come of age since the first banking legislation was enacted. The country’s banking practices and standards, regulation and supervisory controls are on par with that of the global banking community, while it continues to offer clients a high level of professional expertise and confidentiality. The ability of the financial sector to continuously innovate and to locally provide a full range of financial services and products, makes The Bahamas a one-stop shop-for private banking services.

The Central Bank fills the traditional roles as issuer of legal tender, banker to both domestic banks and the government, and regulator and supervisor of the banking sector. As supervisor of banks, the Central Bank promotes the soundness of banks and trust companies through the effective application of international regulatory and supervisory standards. It is a member of various regional and international agencies, including the Association of Banks of the Americas (ASBA); Offshore Group of Banking Supervisors (OGBS); Caribbean Group of Banking Supervisor (CGBS); and also serves on the Financial Expert (Mutual Evaluations) Committee of the Caribbean Financial Action Task Force (CFATF). The OGBS has worked closely with the Basel Committee on the supervision of cross border banking, as well as with the Financial Action Task Force (FATF) on anti-money laundering initiatives.

Continued vigilance is required to secure an effective regulatory environment. Legislative initiatives have been designed to provide products relevant to the international market place, to enhance the regulatory oversight and supervision of the financial service sector, and to further its counter money laundering regime. These initiatives include a focus on risk management and continually updated AML/Counter terrorism financing (CFT) guidelines following the publication of revised FATF 40 plus nine special recommendations. In all, the bank's overall policy objective is the promotion of a stable economic environment conducive to high levels of domestic production, employment and growth.

The continuous review of the AML/CFT laws, policies and practices of The Bahamas forms the cornerstone of the jurisdiction’s commitment to uphold international standards and to protect the fine reputation of the country’s financial services sector. The Bahamas is a member of the Caribbean Financial Action Task Force (CFATF) a FATF-style regional body comprised of thirty member states from the Caribbean Basin. The CFATF conducts peer reviews of its members’ AML/CFT laws, policies and procedures and assesses the extent to which countries comply with the Financial Action Task Force’s 40 + nine recommendations for preventing money laundering and countering the financing of terrorism. The jurisdiction’s efforts to continually assess and strengthen its AML/CFT framework are on-going.