By any standards, international financial centres such as The Bahamas have faced unprecedented challenges over the past several years and even in most recent months. The ongoing COVID-19 pandemic, recent economic turbulence and never-ending scrutiny by international bodies have intensified the business and competitive environment confronting global financial centres.
Yet despite these conditions and the associated pressures, The Bahamas continues to be among the world contenders for international financial services. This kind of resilience is a hallmark of the financial services sector in The Bahamas. No matter the state of the economy, no matter what changes are occurring in the financial services and regulatory landscape, The Bahamas has always maintained its status as a global leader by being able to adapt to the new normal.
Three factors contribute to The Bahamas’ hardened resilience and ability to compete successfully on the global stage: staying true to its roots and pedigree; adopting the highest standards for compliance, innovation and client centric responsiveness; and focusing and embracing developments emerging in the New Economy.
This trifold formula has been paramount in the Bahamas’ ability to attract and welcome international families, capital and business to its shores. In fact, the demand for residences and talent that The Bahamas offers, which is being embraced by family offices and those seeking wealth management services, underscores why the Bahamas’ location, regulatory environment and forward-looking legislation are gaining strength and acceptance as core compelling attributes of the jurisdiction.
Remaining True To Its Roots
The Bahamas is home to over 270 licensed banks and trust companies, including seven of the world's top eight private banks and 35 of the top 100 global banks. These financial institutions deliver a range of services including private banking, trusts, fund administration, accounting, legal e-commerce, insurance, corporate and maritime services. North American banks have been doing business in The Bahamas for more than a century, and European and Swiss banks have deep roots established for over more than 70 years. Financial institutions from other regions with growing economies are recognising the advantages of operating in The Bahamas. Additionally, there is an excess of 800 funds that are licensed in The Bahamas and more than 60 fund administrators.
With an 80 plus year track record in financial services, few jurisdictions offer the wealth management experience that exists in The Bahamas. This heritage is the basis for the strong legal framework that has been cultivated for financial services, an investment climate that has been nurtured over the decades and a stable and predictable business environment anchored by the thousands of Bahamian professionals who work side by side with expatriate colleagues in the many hundreds of service providers that call The Bahamas their home.
There is a sound and proven infrastructure in place that has been built and modernised over the last 20 years. This has facilitated a highly competitive and market responsive financial service offering and at the same time allowed The Bahamas to move forward in a very confident fashion into the new economy and the various elements of these new economies.
One of the key elements of the Bahamas infrastructure is a very strong public-private partnership where communication is open and frank among all three participants that are involved with this agenda: government, regulator and private sector. This public-private partnership facilitates our engagement in creating and investing in our wealth management pedigree and areas of new economies such as digital assets, carbon credits, and ESG relevant solutions.
Highest Standards For Innovation, Client Centric Responsiveness And Compliance
The Bahamas, as a financial centre post 2000, had to become far more conscious of and proactive in reflecting global norms. As a result, our regulatory foundation has become strong. From a global connectivity perspective, we see this transition paying dividends today in light of what we endured in the past two decades. It has been a dynamic period in that we have had to be fearless in striking the right balance between being compliant and aggressive. If we perceive there is a need to tweak, we will tweak, but we will not stand still, we will always be responsive and reflect the needs of our clients and our partners.
Foundations are a prime example of this fearlessness. When The Bahamas made certain changes to facilitate the introduction of Foundations, we received significant pushback. Some people said, “Wait a minute - Foundations, are these not tools for inappropriate behavior?” But we were very confident that our regime was sufficiently strong to provide a robust, well-regulated environment in which foundations can be utilised in an appropriate manner. So, the perception of Foundations might have been negative elsewhere, but when we look some 10 years later, other common law jurisdictions have followed suit.
While 2020 and 2021 have been unprecedented years for many industries, for local financial and corporate service providers in The Bahamas, this period brought in a host of new and amended regulations which carry the potential to transform the very landscape of the industry.
The Financial and Corporate Service Providers Act, 2020 enhances the legal and regulatory framework for those providing corporate and administrative services. Meanwhile, the new Banks and Trust Companies Regulations Act, 2020 consolidates and modernises the law regulating local banks and trust companies to enhance governing powers for The Central Bank of The Bahamas. The introduction of the new Investment Funds Act, 2019 which further enhances the regulatory framework of Bahamas investment funds, allows for the appointment of international fund administrators, and generally rationalises the responsibilities of all the key parties.
From a level playing field perspective, within the past few years, The Bahamas has passed a compendium of legislation to meet international standards 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. 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 counterproliferation legislative, regulatory and enforcement landscapes have been thoroughly reviewed and strengthened with The Bahamas being deemed compliant or largely compliant with 38 out of 40 standards established by the Financial Action Task Force (FATF).
The Office of The Bahamas Attorney General will be submitting a re-rating of the final 2 of the 40 Recommendations to the CFATF – one addressing Not for Profits, and another addressing the effective regulation and supervision/monitoring of virtual asset services providers, working with the Securities Commission of The Bahamas on the latter. The intent of these latest changes is to ensure compliance with all 40 of the FATF Recommendations.
All of these efforts aid in enhancing the risk profile of The Bahamas as an international financial centre, making it an attractive jurisdiction for financial services.
The New Economy
Despite the recent turmoil in the crypto market, The Bahamas remains bullish on the mid to long term prospects for digital assets. It was one of the first countries in the world to introduce a digital currency in the form of the Bahamian Sand Dollar. And the recently introduced Digital Assets and Regulatory Exchange Act (DARE) was developed with the view of how we approach the wider picture. DARE is not a stand- alone single solution but rather the broad features of the jurisdiction such as private banking and funds coming together to recognise why it and a broader based FinTech capability are required. It is just the latest example of the strength and flexibility of the jurisdiction -- the weaving together of elements to create a financial services fabric that is durable and responsive.
The emergence of The Bahamas as a digital assets hub has resulted in companies such as FTX establishing their global headquarters in Nassau as well as a strong interest in Bahamian corporate vehicles to house the operations of digital asset businesses.
At the same time emerging developments in this space has meant The Bahamas, in being true to its market responsiveness DNA, is keeping pace with changes that are required to be a world contender as a hub for digital assets. The capital markets regulator --the Securities Commission of The Bahamas -- is spearheading a raft of initiatives to advance this transformation, including Amendments to the Digital Assets and Registered Exchanges Act (DARE) to address key developments since its promulgation.
The new Bahamian economy however is much more than digital asset leadership and companies being incorporated into the wide range of financial service providers in the country. The sector's sustainability has implications for the broader economy. The diversity within the financial services sector in terms of product offerings contributes in a meaningful way to the livelihood of the Bahamian people and the country’s economy. This contribution will become more pronounced as the country pivots to invest in diversification with a focus on the “blue and orange" economies, which have been identified as pathways for greater economic expansion, new business opportunities and wealth creation for Bahamians and international investors alike.
The Bahamas is looking to modernise its fishing industry, generating ocean sciences and marine conservation opportunities while sustainably developing marine biotechnology, aquaculture, and deep-sea exploration initiatives. Renewable energy industries are also on the horizon. Meanwhile, as a vital component of the Bahamian economy, the tourism sector is looking to design a new tourism model which fully integrates culture and the creative industry in The Bahamas.
Both tourism and financial services are actively supporting these initiatives both domestically and internationally. This foreshadows deploying the linkages when the country’s traditional economic engines engage the country’s New Economy with benefits accruing to both.
Wendy Warren is the Founder and Managing Director of Caystone Group. Prior to establishing Caystone, Ms. Warren spent 11 years as CEO and Executive Director of the Bahamas Financial Services Board (BFSB), a financial sector body that works closely with government, regulators and private industry to ensure The Bahamas provides global clients with best-in-class financial services. Following her time with BFSB, in 2012 Ms. Warren established Caystone, an operational family office focused on full corporate and fund administration services. She is also a director and founder of Onyx Partners Ltd., an independent, international fiduciary company. Ms. Warren has worked in a variety of roles in the fund administration, wealth management and audit fields including 8 years co-leading the establishment and operation of a leading investment funds administrator. She has worked with families and family businesses for over 30 years and her knowledge of the financial services business and community is broad, augmented by a deep understanding of The Bahamas and its legislative framework. Ms. Warren has served as a director on various boards and committees including Bahamasair Holdings, Bahamas Electricity Corporation, Bahamas Trade Commission, the Financial Services Consultative Forum and the Bahamas Association of Mutual Fund Administrators. Ms. Warren, a Chartered Accountant, holds a bachelor’s degree in Accounting from the University of Waterloo, Canada and has completed postgraduate studies in Corporate Governance at the Kellogg School of Management (Northwestern University). She is an Anti-Money Laundering Certified Associate (AMLCA) and completed the STEP Professional Postgraduate Diploma in Private Wealth Advising.