Weathering The Storm

IFC: Barbados is widely regarded as a stable, modern, treaty based and cost-effective jurisdiction. How has the financial sector weathered the pandemic?

MY: Barbados is indeed a stable, modern, treaty based and cost-effective jurisdiction with an extremely robust regulatory framework designed to both mitigate and minimise the impacts of external shocks to the sector. The Capital Markets is a sub-sector and the BSE, of course, operates within this space and can only reference its specific experiences during the ongoing pandemic.

Traditionally, macroeconomic shocks tend to impact the capital market in Barbados 3 – 6 months after they have occurred. This pandemic, however, was much different; its impacts were swift and felt immediately. As an electronically trading Exchange, the BSE was able to respond quickly due to its robust IT infrastructure and our response and adjustments were relatively seamless.

Based on our trading statistics for 2020, activity across the floor at the BSE was severely impacted, as trading volumes and values decreased by 97 per cent and 98 per cent respectively with an accompanying decline in the actual number of trades conducted by 73 per cent. Our market measures – BSE Local, BSE Cross-Listed & BSE Composite Indices – were also negatively impacted recording decreases to the tune of 17 per cent, 33 per cent and 18 per cent respectively.

These results were less than favourable; however, the reality is that the protocols imposed to curtail the pandemic’s impacts also restricted the physical movement of persons across the country. As the pandemic’s effects persisted, the general level of uncertainty also increased. Job losses were experienced within the first six months, forcing persons to draw on their savings. Those who were able to maintain their jobs, however, would have shifted their focus from investing towards holding on to their savings given the circumstances.

Though much has been done over the years to digitise operations across the board, the legislations related to our financial sector still require some paper-based transactions to occur. For instance, our brokers are required to obtain physical signatures of their clients for the purposes of executing transactions; if clients cannot sign, the brokers cannot trade and trading activity contracts. Moving forward, the application of greater digitisation should be considered, as completely paperless policies and systems would both increase the ease of doing business as well as shorten the times associated with conducting certain transactions. Their application could also be instrumental in speeding up the post-pandemic recovery process at the macroeconomic level.

Luckily, it is not all doom and gloom here at the BSE. As we return to some semblance of normalcy, we are seeing improvements in the levels of trading activity across our board. When compared to Quarter 2 – 2020, Quarter 2 – 2021 recorded increases in terms of volume of 463 per cent with a corresponding increase in value of 161 per cent.

IFC: How important is foreign direct investment to Barbados?

MY: Foreign Direct Investment (FDI) is of significant importance to Barbados and drives economic activity in the construction, distribution and general business and services sectors.

Barbados was among the few small island developing states (SIDS) and one of only three Caribbean islands to experience FDI inflows in 2020, despite the global pandemic. This was according to the United Nations Conference in Trade and Development (UNCTAD) World Investment Report 2021[i], which indicated that seven nations – including Barbados – were the least affected (FDI-wise) by the downturn caused by COVID-19.

The pandemic resulted in reduced FDI inflows globally and particularly in the Caribbean, which contracted 36 per cent to US$1.4 billion. However, Barbados was able to increase its inflows by 22 per cent to US$262 million during that period.

The report also indicated that the United States of America followed by Canada, were the largest investors in SIDS, with their outward stock increasing over previous years[ii]. This is good news for Barbados. The World Investment Report forecasts that for SIDS, short- to medium-term recovery of FDI inflows will remain modest unless pre-existing vulnerabilities such as tourism, natural resources and poor connectivity with the world are tackled swiftly and efficiently[iii].

Barbados continues to be proactive in its efforts to mitigate the economic fallout from its tourism industry by being one of the first nations in the Caribbean to introduce a 12-month visa for persons desirous of living and working remotely in Barbados – the Barbados Welcome Stamp.

The government of Barbados has also ramped up its efforts to enhance the ease of doing business globally through its digitisation programme, which has seen several government agencies take their services online for a speedier and more efficient customer service experience.

IFC: Have any new business opportunities opened up either during or post-pandemic?

MY: Yes. In the midst of the pandemic, we received word that a local organisation was exiting the Custodian and Trust Services market. Their exit, however, meant that a slew of corporate clients would still require the services of a Custodian to manage assets previously held in trust by the exiting company. We strategically examined the custodian and trust services model and recognised that there were several similarities between the nature of this business and that of our subsidiary, the Barbados Central Securities Depository Inc. (BCSDI) – a Registrar and Transfer Agent service provider with over 23 years of experience. In fact, the BCSDI had been providing similar services to a small number of clients locally.

Further, we realised that by utilising the present technologies of the BCSDI – which superseded the systems in use by the exiting company – we could offer a similar or better standard of service to these clients in a more timely and efficient manner. Our analysis convinced us that this was a worthwhile pursuit, and led us to form – after the approval and blessing from our board of directors – an entity to provide custodian and trust services for the vacuum in the marketplace. This entity, called the BCSDI Custodian Trust Services Inc. (or BCTSI for short) was created on January 28, 2021 as a wholly owned subsidiary of the BCSDI. The BCTSI’s intended purpose is to deliver cost-effective and dependable custodian and trustee services to market actors in the financial services industry.

Since we commenced operations in January 2021, the learning curve has been quite steep but fulfilling. Our focus to date has been on having much needed discussions with our primary stakeholders – the Regulators and prospective clients. Discussions with the former have been very productive as we strive to ensure that our Regulators are satisfied that we can provide the expected levels of exemplary service to our customers whilst also remaining in compliance with the policies and procedures set out in the legislative frameworks that they administer.

As it relates to our prospective clients, conversations have been fruitful as they too are ensuring that they fulfil their respective due diligence obligations as they prepare to make their own submissions to Regulators. These conversations were very insightful and have allowed us to further enhance our business model and make specific changes, where possible, to our service offering. We believe that this allows us to capture significant market share, thus ensuring the future viability of the organisation.

IFC: This year, the BSE has been focused on promoting market development and seeking new listings: what has been achieved so far with this goal?

MY: Market development is ongoing, and we are currently working with a developer to develop a new trading platform for our traditional securities. Simultaneously, we are working with another developer on an application that caters to the listing and trading of digital assets – primarily securities tokens – and are scheduled to deliver Broker Training during Quarter 3 of this year. Obtaining new listings for our Main Market, Innovation & Growth Market (IGM) and International Securities Market (ISM) will always be our primary focus. While local economic contraction has stymied our Main Market efforts, our international markets have become increasingly attractive - we have been fielding a number of queries related to listing opportunities on the ISM.  

IFC: What will be your focus for the remainder of the year and into 2022?

MY: We will continue our focus on procuring new listings with an added emphasis on enhancing market development. While the former is the life blood of the Exchange’s existence, we are cognisant of the fluidity of the contemporary environment. The BSE relaunched our market for Small to Medium-Sized Businesses (SMEs), then known as the Junior Market (JM), in July 2019. A rebranding effort saw the JM being renamed as the Innovation and Growth Market (IGM) as previously mentioned. The IGM is geared towards innovative SMEs with high growth trajectories. We have partnered with both the Ministry of Energy, Small Business and Entrepreneurship, and the Small Business Association to develop a framework for SMEs that allows them to raise cost effective capital through Initial Public Offerings (IPOs) in the local capital markets with subsequent listings on the IGM.

With reference to market development, we are currently in the final stages towards the deployment of a new trading platform. This platform will replace the existing technology and is set to enhance our offerings with the provision of a mobile application. This will greatly democratise access to the BSE’s markets, making it much easier for investors to: 1) access their account information; and 2) execute transactions collectively through their mobile devices. We will also leverage the technologies used in house by our subsidiaries – the BCSDI and the BCTSI.

IFC: Are you currently exploring new investment markets?

MY: The BSE’s goal is to become the preferred exchange of choice in CARICOM. Our value proposition is buttressed by our eminent domiciliation in a country – Barbados – that offers a stable political and economic environment and a legal system based on the English common law.

To augment the aforementioned fundamentals of substance, the BSE is pursuing international ‘exchange recognitions’ as a viable strategy towards attracting new listings. The UK and Canada were highlighted as critically important, in part due to our Commonwealth ties but also largely because of the strong business and investment ties that exist between Barbados and each of Canada and the UK.

United Kingdom:

The BSE is already designated – in the United Kingdom – as a “recognised stock exchange” by Her Majesty’s Revenue and Customs (HMRC) under the UK Income Tax Act, 2007. This status in the UK enables the BSE to provide UK investors with additional international investment opportunities – outlined below are some of these benefits (as accorded by the UK-Income Tax Act, UK-ITA):

• Securities listed on the BSE (ISM) may be held in tax advantaged Individual Savings Accounts (ISAs) and Personal Equity Plans (PEPs) by UK investors, which is similar to the advantages associated with securities listed on designated stock exchanges for Canadian investors;
• Holders of debt securities satisfying the Eurobond exemption and listed on the BSE (ISM) are exempted from withholding tax on distributions underlying these debt securities;
• Inheritance tax allowances may accrue to UK holders of securities listed on the BSE (ISM); and
• UK pension schemes will be permitted to hold securities listed on the BSE (ISM), giving companies and funds listed on BSE (ISM) access to a larger market of sophisticated, well-capitalised investors.

For UK investors in Barbados, recognition further functions as an additional protection mechanism for significant investments, both under the UK-ITA and within the context of the Barbados-UK Investment Treaty. The Barbados-UK Tax Treaty and the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS MLI) specifically assures the application of extended limitation of benefits’ rules to entities qualifying for benefits under the Barbados-UK Tax Treaty (including, specifically, entities listed on a recognised stock exchange).

Canada:

The BSE is presently pursuing recognition as a “designated stock exchange” under section 262 of the Income Tax Act (Canada) (ITA) by the Minister of Finance of Canada. Status as a ‘Designated Stock Exchange’ under the ITA in Canada would provide Canadian investors with similar benefits to the ones our status as a “recognised stock exchange” provides to UK investors. Specifically, it would enable the BSE to provide Canadian investors with additional international investment and diversification opportunities, particularly as part of their Registered Retirement Savings Plans (RRSPs), Deferred Profit-Sharing Plans (DPSPs) and Tax-Free Savings Accounts (TFSAs), and through Registered Pension Plans (RPPs).

We believe that the pursuit of international exchange recognitions will greatly enhance our ability to attract new issuers and increase trading volumes on the BSE.

IFC: What effect will the recent G7 decision to impose a minimum corporate income tax rate likely have on Barbados?

MY: While it is not demonstrably clear how this will be impacting Barbados, it is largely viewed as more harmful than helpful, particularly over the short-term for the island.

It should be noted however that a so-called “substance carve out” in the OECD agreement allows companies to pay a lower rate than 15 per cent in countries where they have many employees or tangible assets such as factories and machinery. It is reasonable to believe, therefore, that many countries – perhaps including Barbados – will greatly revise their tax codes and selling messages going forward.

Fortunately for Barbados, it has always positioned itself as a jurisdiction that requires substance on our shores to avail of tax efficiency. As a consequence, there will only be a slight tweak required for our business model: international companies will be sought for local domiciliation that can primarily service the domestic economy more so than the global marketplace. Barbados’ tangential yet intangible pull factors will therefore play a significant role going forward. Additionally, an increasing focus on maintaining active, bilateral arrangements is already in the works to help soften the blow from the G7 – now G20 and beyond – framework for a global corporate tax imposition.

IFC: Barbados was an early adopter of financial technology. Are government and regulators continuing to support this sector?

MY: The Government of Barbados is supporting the FinTech sector. The onset of the pandemic forced Barbados as a jurisdiction to embrace the use of digital technologies, especially digital banking. On February 23, 2021, the Government of Barbados introduced the National Payment Systems Bill which laid the legislative framework for the digitisation of payments on island. Provisions were also included to establish a common electric payment vehicle in the future to facilitate business transactions both locally and internationally. Government is also committed to the implementation of real-time banking for financial institutions by November 2022.

As a self-regulatory organisation, the BSE Group too has been working towards increasing the spread and application of FinTech on the island. For example, our regulator – the Financial Services Commission – recently approved our rules for the listing and trading of Digital Assets on our board through the utilisation of blockchain technology.

IFC: Why would you encourage investors to choose Barbados?

MY: Barbados’ economic model is premised on the preservation of legal rights of investors through international investment agreements which allow for credible investment opportunities while recognising and enforcing fiscal compliance.

Further, Barbados is a signatory to the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”) in January 2018 and is a member of the OECD/G20 Inclusive Framework on BEPS, which further demonstrates Barbados’ adherence to developing international tax norms.

Overall, Barbados is a quality destination that is trusted, well regulated, and follows international best practice in capital market regulation. Barbados is consistently ranked among the top 10 captive insurance domiciles in the world and remains a quality jurisdiction for direct investment opportunities. The ubiquity of our Commonwealth legal features is significantly attractive: Barbados’ well-developed legal system is derived from English Common Law and Statutes; Barbados’ modern corporate law is modelled on the Canada Business Corporations Act.

IFC: Is there anything you would like to add?

MY: I would just like to thank IFC Review for extending the opportunity to the BSE Group to update their audience on our operations and the Barbados jurisdiction as a whole.

Footnotes:

[i] Pg 116: https://unctad.org/system/files/official-document/wir2021_en.pdf

[ii] Pg 117: https://unctad.org/system/files/official-document/wir2021_en.pdf

[iii] Pg 119: https://unctad.org/system/files/official-document/wir2021_en.pdf

Marlon E. Yarde
Marlon E. Yarde has been with the Barbados Stock Exchange Group since November 1, 2003. The Group includes the parent, Barbados Stock Inc (BSE) its subsidiary, the Barbados Central Securities Depository Inc. (BCSDI) and the subsidiary of the BCSDI, the BCSDI Custodian Trust Services Inc. (BCTSI). He currently holds the position of Managing Director and CEO within the Group. Mr. Yarde has played a leadership role in the significant developments within the BSE over his eighteen plus years tenure, including the BSE’s demutualization and the launch of the International Securities Market. Mr. Yarde, a Chartered Accountant with his professional qualifications being a Fellow of the Chartered Professional Accountants Association of Canada and a Fellow of the Institute of Chartered Accountants of Barbados. He is also a Chartered Governance Professional and Chartered Secretary holding a Fellowship designation from the Chartered Governance Institute given in London. In addition, Mr. Yarde holds a Bachelor of Laws Degree from the University of Huddersfield in the UK and a Master of Laws Degree, specializing in Securities Law from Osgoode Hall Law School of York University in Toronto, Canada. Mr. Yarde is a keen support of and advocate for excellent corporate governance practice in Barbados and the wider Caribbean.