In the past few years, international financial centres have had to respond to a number of international initiatives focused on fighting financial crime, tax transparency, and cooperation measures. They have required IFCs to implement robust legal and regulatory regimes to address economic substance, preferential tax regimes, and access to beneficial owner information. The Bahamas, situated off the eastern coast of the United States, has just passed this complex set of tests with flying colours and has been 'whitelisted' by the trading bloc. A suite of legislation and economic planning has led to a revitalisation of their financial services, both in the well-established field of wealth management and in other areas.
Well Regulated Jurisdiction
The Bahamas prides itself on being a well-regulated jurisdiction which adheres to international best practices and, therefore, continues to work diligently to demonstrate its commitment at the highest political level to ensuring that as a jurisdiction, it complies with international standards on information exchange, tackling harmful tax practices, dismantling artificial tax structures, and prevention of financial crimes.
Within the past few years, The Bahamas has passed a compendium of legislation to address concerns regarding economic substance, removal of preferential exemptions, and automatic exchange of tax information to meet the EU and OECD’s criteria on tax matters which resulted in the European Union removing The Bahamas from its list of uncooperative jurisdictions for tax purposes in March 2020. Most recently, on March 4 of this year, the Government of France removed The Bahamas from the French list of non-cooperative states and territories in tax matters. In addition, The Bahamas maintains the highest standards in the fight against money laundering, terrorist financing and other identified risks and, therefore, has been making significant strides in the fight against financial crime. The anti-money laundering, counter financing of terrorism and counter proliferation legislative, regulatory and enforcement landscapes have been thoroughly reviewed and strengthened with The Financial Action Task Force removing The Bahamas from its anti-money laundering and counter terrorism financing watch list in December 2020. All of these efforts aid in reducing the risk profile of The Bahamas as an international financial centre.
Meeting Client Needs In Uncertain Times
The COVID-19 pandemic has significantly impacted the way that we do business in general. The international financial services sector is no exception. Nonetheless, as our business is based on deepening client relationships, travel restrictions, lockdowns, and concerns around health and safety have forced us to rethink how we maintain client relationships, develop new ones, and sharpen our focus for the advice given to clients. In a sector where relationships are everything, it is important that we hold on to the ones we have. Considering the economic impact of the pandemic it is also imperative that we develop new business. One must also be mindful that the pandemic did not stop the onslaught of regulatory requirements.
In July 2020, The Central Bank of The Bahamas released the results of a survey of international banks and trust companies in The Bahamas regarding the operational impact of the COVID-19 pandemic. The results were reassuring as institutions were able to maintain effective operations in the COVID environment. The financial impacts were noted as “minimal”, highlighting the resilience of the sector and the fact that the majority of firms were able to activate business continuity plans whilst others quickly implemented plans to ensure that client needs were met.
COVID-19 Planning Considerations
The global economic environment and prevailing geopolitical factors have created an opportune time for clients to review their estate plans and financial strategies. Advisers in The Bahamas have been focused on the following matters:
The COVID-19 pandemic means that advisers must review client relationships and offer advice to guide clients through these challenging times. Income generating assets need to be secured. Measures must be put in place to ensure sustainability over the long term. With interest rates being low, opportunities to review estate planning strategies have arisen. Obviously, wealth preservation is of paramount concern with clients considering the impact of dispositions on the overall value of their portfolios. The stress of the pandemic has strained family dynamics as well. Hence, family governance documents need to be reviewed and updated.
The Jurisdiction Of Choice
Expertise, Innovation and Location are the pillars of financial services in The Bahamas. In combination, they form a compelling reason to consider The Bahamas as a place to do business and will continue to guide the jurisdiction’s pathway to be a provider of superior financial products and a world class client experience.
With its historic commitment to providing high quality services to families that span the globe, The Bahamas is one of the world’s foremost wealth management centres. It services an international client base with a full range of private banking, estate planning, asset management, insurance, and fund administration services.
Many of the world’s largest and most prestigious financial institutions have taken advantage of The Bahamas’ stable political and economic system to establish branches or subsidiary operations in the jurisdiction to offer Private Banking services to high-net-worth and ultra-high-net-worth individuals and families.
The Bahamian trust is a long-standing fixture in the international wealth management market. Trust legislation in The Bahamas is robust and, in many cases, precedent-setting, providing the benefits of asset protection, control, succession planning and privacy. The level of protection afforded to trustees of Bahamian trusts continues to provide The Bahamas with an advantage over other jurisdictions.
The foundation is an option for an effective estate planning tool where a trust is not a preferred vehicle. Under Bahamian law, foundations may have beneficiaries and are separate legal entities capable of holding assets.
The Bahamas Executive Entity
The Bahamas Executive Entity (BEE) is designed to fill governance roles within wealth structures. The BEE is ideal because it is a legal entity with limited liability; is designed as having governance or office-holding purpose; is able to purchase liability insurance; has no shareholders or beneficiaries and thus lends itself extremely well to the executive purpose of holding the shares of and exercising voting rights in respect of a private trust company or other company; and it can operate in multi-jurisdiction structures.
Presently there are over 800 licensed and regulated investment funds, with numbers steadily increasing year after year. The Bahamas’ regulatory framework is flexible and accommodates a wide variety of strategies, including pure hedge funds, money market, private equity, real estate, and distressed debt. A large majority of investment funds on the register in The Bahamas are private funds for a small number of investors, typically employed by family offices and related investors.
The Bahamas is strategically nurturing captive insurance as an important addition to its growing and impressive array of financial services.
As a forward-thinking IFC, market responsiveness has been the basis of legislation creating innovative, client-centric products and services in a modern, compliant regulatory regime. Innovation and responsiveness also apply to legislation to enhance sector competitiveness. The emerging digital space is a prime example.
DARE Legislation Opens The Door For New Industry
The passage of the Digital Assets and Registered Exchanges Act, 2020 (DARE) has put in place the legal framework for a vital, well-regulated, and compliant industry in The Bahamas for those interested in entering the digital asset space.
It also creates specific opportunities for entrepreneurial Bahamian Fintech firms to enjoy the credibility of being licensed and functioning under a comprehensive regulatory regime and participate in the Fintech industry that is being forged with DARE.
DARE facilitates the registration of digital token exchanges and the provision of services related to digital token exchanges. It also provides for the regulation of digital assets- based payment service businesses and for the registration of financial services related to the creation, issuance or sale of digital tokens and other digital assets.
Location Is Everything
The unique geographical location of The Bahamas, just 50 miles off the coast of Florida and positioned as the gateway to the wider Americas, is an undeniable advantage for The Bahamas. Our proximity to the US, Central and South America places The Bahamas in an enviable position to serve both our traditional and emerging markets and presents an opportunity to link commercial and financial interests. In recent years, as more and more individuals have chosen to “follow their money” with respect to where they live and work, The Bahamas, with its tropical environment, has become the preferred choice for many who yearn for an excellent quality of life whilst being able to manage their financial affairs.
Moreover, the strong regulatory regime that characterises the jurisdiction’s financial services sector ensures that the integrity of The Bahamas as an international financial centre is maintained. Like many IFCs across the globe, The Bahamas has enacted legislation which requires certain entities to have substantial economic presence within its jurisdiction. The Bahamas is an ideal location for creating real economic substance as more family offices choose to make The Bahamas their home.
Tanya C McCartney
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.