The past 15 years for international financial centres has been a period in which some might say ‘survival of the fittest’ is the end game. For The Bahamas however, the end game has never been one of survival but rather one of adaptation to change based on meeting its international obligations while at same time choosing the path of innovation to reach new markets and better serve existing ones.
In a recent presentation to the Bahamian financial services industry the Minister of Financial Services, The Hon Hope Strachan used the word ‘volatile’ as the most fitting description of financial services as a whole. ‘This is the case on a national, regional and global scale,’ she said. “There are challenges all around. Banks and international institutions are mobile and migratory as they ferret out jurisdictions which produce the best profit and the least risk leaving whole industries, and in some cases whole countries, in extremely vulnerable and disadvantageous positions. These challenges are not confined to any particular category of banking, in fact local, international and offshore banking have all been affected. All sectors of the financial Services industry, including onshore and offshore institutions, have been impacted.”
The issues facing The Bahamas and other IFCs are well known: the combined challenges of international initiatives, increased competition, industry consolidation, changing client demographics, emerging market requirements; legacy market stagnation and of course, the financial crisis just a few short years ago.
The Bahamas response has been and will continue to be a balanced approach to responding to and implementing international initiatives, always cognizant of our statehood as well as our heavy responsibility as a member of the international community. In her presentation to industry stakeholders Minister Strachan reinforced this approach. “Since the black listings of 2000 The Bahamas has recognised the wisdom of adopting a pro‐active approach to complying with international regulatory obligations rather than a re‐active approach. A tremendous amount of work went into the passage of the suite of financial services legislation.”
On 20 March 2010, The Bahamas achieved the G20 standard on Transparency and Cooperation in Tax Matters. This standard was first promulgated by the Organisation for Economic Cooperation and Development (OECD) in the 1990s. In 1998, the OECD sought to have 40 plus countries, including The Bahamas, adopt this standard. The Bahamas, in a 1999 presentation to the OECD, insisted on a level playing field. This principle was formally accepted by the OECD in 2002 and represented in a communiqué issued by The Bahamas in 2002.
For more than 10 years, The Government of The Bahamas held firm to this principle and kept faith with the industry; likewise in 2009, The Bahamas, as an integrated member of the international community, moved to implement the standard immediately following global consensus and the achievement of its key pre-condition ultimately negotiating and executing 33 Tax Information Exchange Agreements (TIEAs) to date.
The Minister also stated, “More recently our significant achievements in enacting The Intergovernmental Agreement between The Government of The Bahamas and the Government of The United States on the Foreign Account Tax Compliance Act (FATCA) signed in 2014 and establishing by legislation a new standard for international tax transparency and automatic exchange of tax information between our two countries deserves commendation. By passing this legislation, setting up an information portal with the Minister of Finance as the competent authority and having successfully registered the lion’s share of foreign financial institutions to date was a monumental task but one that we successfully achieved before many countries with reputably far greater capacity and resources.”
There is however a need for continued and more inclusive dialogue to ensure that the means proposed actually accomplishes the legitimate end and where small financial centres like The Bahamas are engaged for input on standards that impact us. The Bahamas has always sought to do so in a way which supports the dialogue on these key issues.
The current OECD obligation before us to adopt the Common Reporting Standards (CRS) for the Automatic Exchange of Information (AEOI) is a case in point. Fortuitously, the FATCA platform and portal have been designed with the requisite capacity to facilitate the institution of a new reporting platform for the OECD’s Global Forum automatic exchange of information and the CRS. The Bahamas has committed to a 2018 reporting date under a bi‐lateral approach, opting for agreements with countries on an individual basis as opposed to the multi‐lateral approach under The Multi‐Lateral Convention on the Mutual Administrative Assistance in Tax Matters. The option conforms with OECD policy and only after careful consideration and wide consultation with industry was this approach selected.
The multi‐lateral approach provides that all parties to the convention are obligated to the automatic exchange of information with all other member states who are signatories. The bi‐lateral approach in contrast allows member states to enter into negotiations with countries on an individual basis.
“Notwithstanding that The Bahamas has elected the bi‐lateral approach for the automatic exchange of information, we are confident that we can successfully remain true to the overarching principles and their intended goals,” said the Minister.
Those principles state that the OECD members must act together to combat tax avoidance and tax evasion internationally; that for member states to do so successfully requires co‐operation and a coordinated effort by all states; and that the protection of confidentiality of information and taking account of international instruments of protection of privacy and flows of personal data is critical to the cooperation of member states in the AEOI system.
Cognizant of the need to prepare for our 2018 adoption of the CRS, the Ministry of Financial Services (MOFS) in collaboration with the Bahamas Financial Services Board (BFSB) and several industry stakeholders are taking a proactive approach to implementation. An Implementation Task Force ‐ comprised of all major stakeholders including the Ministry of Finance as the portfolio Ministry, the MOFS, BFSB, the Attorney General and private sector representatives ‐ are devising an implementation plan and will assist with the drafting of the requisite legislation in a timely manner.
Provided the timelines remain as currently contemplated, The Bahamas is expected to adopt the OECD’s AEOI Standard by 2018. Of importance to The Bahamas is that the receiving country is an ‘appropriate’ country for the receipt of such information, including that such country has in place the safeguards necessary to ensure the confidentiality, safety and proper use of the information exchanged.
This is entirely consistent with the OECD’s own guidance and its efforts to review countries and their data protection and proper use regimes by mid-2016.
As we carry out our mandate around the world, taking our message of The Bahamas Advantage, and of the unique products and services we offer, we are consciously now emphasising the robust legislative and regulatory regime that is The Bahamas. In change we see opportunity.
Tanya C McCartney CEO and Executive Director, Bahamas Financial Services Board, Tanya McCartney was appointed CEO of the Bahamas Financial Services Board in December 2015. She is a UK trained barrister and chartered banker. Her professional career began in 1997 as Assistant Counsel in The Office of the Attorney General. Since 1999 she has held senior positions in financial services.