The Bahamas: Steadfast On Regulatory Compliance

Bahamas Attorney-General Challenges FATF To Reaffirm Itself As AML Standard Setter

The nation had achieved a “rare” feat of becoming only the sixth nation ever to achieve full compliance with the Financial Action Task Force’s (FATF) forty recommendations for combatting money laundering and terrorism financing. It is one of only two jurisdictions in the Caribbean and the Americas to attain such a position in the FATF’s Global Network of 206 jurisdictions.  Of note, only one European country has achieved this perfect rating under FATF standards, despite the misconceptions that originate from that part of the world regarding countries such as ours.

It is against this backdrop that Attorney-General and Minister of Legal Affairs, Senator Hon. Ryan Pinder, speaking at the recent 4th Anti-Money Laundering (AML) Research Conference hosted by The Central Bank of The Bahamas, challenged FATF to reaffirm itself as the only AML standard setting body and not let other organisations supplant its standards. “The FATF is the recognized body internationally that sets the standards for every country to comply with,” said the Attorney-General Pinder. “I can speak firsthand, the requirements are robust, the obligations on countries are significant and we like other countries do what we need to do to comply at the fullest levels.  A challenge arises when other institutions, organizations or multilateral bodies try to represent themselves as international standard setting bodies, prescribing standards that are different from those of the recognized bodies.”

The true cost benefit for countries such as The Bahamas of arbitrary and unilateral blacklists was another issue raised by the Attorney-General. “We all strive to be compliant, the world economy dictates we must be to participate,” he noted.   “So, assuming that, what is the utility of blacklists in light of the extraordinary economic damage it implores on us small developing countries.  We make up the vast majority of blacklisted countries, former colonies of European imperialists.  Of the 65 jurisdictions gray-listed or blacklisted by FATF from 2010 to 2020, none are in the Group of 7 industrialized nations while only two, Argentina and Turkey, are in the Group of 20. The vast majority hail from the Global South, and twenty-eight rank in the bottom half of economic output as measured by GDP.  We must look at this much closer and have objective research demonstrate the point that blacklists have lacked objectivity and fairness and have devastated at times economies of small developing states in our hemisphere with questionable global benefit.”

As an example, he referred to the EU’s code of conduct group blacklisting 17 countries after the release of the Paradise Papers. “Not one European country was listed; they all got a free pass,” he said.  “In February 2019, the EU published an updated version of their AML/CFT list.  Again, not a single European country was listed. In 2022, the EU identified jurisdictions with strategic deficiencies in their AML/CFT regimes that pose significant threats to the financial system.  Why is not a single EU member country or their most influential trading partners listed? I suggest a research study of these arbitrary actions and the cost/benefit analysis.”

The Bahamas Attorney-General reaffirmed that the country would continue to work with all international partners to maintain its Anti Money Laundering, Counter Financing of Terrorism and Counter Proliferation (AML/CFT/CFP) regime on par with international agreed measures to safeguard the global financial system. “Each year over the last seven years, progress has been made with the introduction of enhanced legislation and attendant regulations supervisory and enforcement AML/CFT/CFP regimes, and increased engagement with the professional stakeholders,” he noted.

IOSCO “A” Signatory And AIFMD Compliant

The Securities Commission of The Bahamas is a member of the International Organization of Securities Commissions (IOSCO), and in January 2013 achieved Signatory A Status under its Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU).

The Commission is also an A.1 Signatory to IOSCO’s Enhanced MMoU (EMMoU), one of the first regulators in the world to adopt the new standard, showing the Commission’s commitment to being a leader in enforcement and enhancing participation in global enforcement efforts. The EMMoU primarily enables sharing of more types of information from different sources and makes additional avenues available to regulators to cooperate to assist with freezing of assets or compel information. These provisions aim to keep pace with technological, societal, and market developments and to bolster deterrence to protect investors better and the markets.

Being a signatory to these MMoUs signifies the highest level of compliance with international standards for the jurisdiction’s securities regime.

In compliance with the European Union Alternative Investment Fund Managers Directive (AIFMD), the Investment Funds Act, 2019 provides a legislative and regulatory framework for alternative investment fund managers that manage or market alternative investment funds in the European Union. The Securities Commission of The Bahamas has already engaged with and executed 28 Memorandums of Understanding with counterpart securities regulators in order to facilitate participation in their respective countries.

The AIFMD MOUs entered into by the Securities Commission of The Bahamas set standards for co-operation and cross-border supervision, making the supervision of alternative funds more consistent globally and strengthening investor protection.

Carbon Trading Regulation

As the attention shifts globally to the environment, sustainability and governance across the world of investment, the jurisdiction is now also focusing its efforts on this area. “Recognizing that The Bahamas must take a main rather than supporting role in its national interest, The Bahamas recently passed two critical pieces of legislation to facilitate green finance initiatives in and from The Bahamas,” said Aliya Allen, partner with Graham Thompson.

“The Carbon Market Initiatives Act, 2022 (“CMIA”) facilitates the Bahamas’ national carbon credit program,” said Allen.  “The Bahamas’ unique topography consists of thousands of miles of mangroves which are more efficient at carbon capture than just about any other environment.  As a result, The Prime Minister of The Bahamas believes that The Bahamas possesses roughly $300M worth of carbon credits which the Government of The Bahamas can sell on carbon markets to assist with global sovereign and commercial carbon off-setting initiatives. The CMIA facilitates the mapping, verification, and eventual sale of such carbon credits, noting that they are sovereign assets which accrue to the Government of The Bahamas.”

Executive Director of The Securities Commission of The Bahamas, Christina Rolle draws attention to the second piece of legislation: “A notable work of innovation the Commission has been driving is the development of the Carbon Credits Trading Act, 2022, which was passed in August.  The passage of the legislation makes The Bahamas among the first jurisdictions in the world to attempt the regulation of the trading of carbon in the secondary market.  This has the potential to once again establish The Bahamas as a forward-thinking jurisdiction with the capacity and will to develop robust, pragmatic, innovation-embracing regulation.”

Digital Assets Business

The Digital Assets and Registered Exchanges (DARE) Act, 2020 provides for the Securities Commission of The Bahamas to regulate the issuance, sale and trade of digital assets in or from within The Bahamas. Even in consideration of what is being referred to as a “crypto winter” and all of the surrounding events, The Bahamas is focused on what lessons can be learned and our regulatory agencies remain focused on maintaining our position as a forerunner in the regulation of digital assets. This is a fast-paced area and as such, The Bahamas’ ability to be agile and responsive has served it well. Integrity and soundness underpin The Bahamas as an IFC.  This has always been a core element of its value proposition.

Christina Rolle stated recently at an Industry Dialogue, “There are a number of developments we are progressing in the digital assets space, although I do not know that I would call all of them innovations. A number of these will address some of the lessons we have learned from the crypto winter, as well as from our other work in this space to keep current with its ongoing evolution.”

Before the end of this year, the Securities Commission of The Bahamas will put forward major amendments to the Digital Assets and Regulated Exchanges Act. A key goal will be to provide for a full regulatory framework for stable coins. The Commission will also address the issue of staking, and how customer assets are held - making it very clear that they must be held off balance sheet, in an account segregated from the firm’s operational accounts.

“The efforts by the Government and the Securities Commission of The Bahamas to establish The Bahamas as a leader in the digital assets space have been well received by the industry in The Bahamas,” outlined Mrs. Christel Sands-Feaste, a partner with Higgs & Johnson. “The passage of the DARE Act, 2020 and the publication by the Government of its Policy White Paper on the Future of Digital Assets in The Bahamas in April 2022 demonstrates the commitment by the policy makers in The Bahamas to the development of the digital assets space, in a well-regulated framework.”

While the uncertainty in the crypto world may have given rise to other shifts, Carl Christian Illing of ActivTrades opines that transformation in the digital assets space is likely, stating that: “There seems be to a consolidation in the crypto market where a few strong players survive and will integrate smaller cap companies into their company fold. The Bahamas is well positioned to welcome new crypto companies and assure the investor that this industry is well regulated and constantly being monitored.”

According to Dr. Iyandra Smith of Quantfury Trading, the outlook for crypto is largely positive: “Stronger optimism around the economy, less geopolitical tension, and control on inflation will lower market uncertainty and give us a better expectation of what is to come in the future which could only be a positive for crypto investors.” Looking ahead, Dr. Smith notes: “The financial industry in The Bahamas will continue to expand, with digital asset service providers being a significant area of opportunity and growth going forward. Digital asset service providers offer an alternative asset class and seek regulatory certainty and appropriate governance surrounding such alternative asset classes. The Bahamas continues to adapt and evolve its regulatory framework to provide the necessary regulatory certainty, giving players the “rules needed to play the game.”

Discussing the further penetration of digital assets, Sands-Feaste noted that “With the global economic uncertainty and record inflation levels, my outlook for the industry generally is cautiously optimistic.  With regard to the fintech sector in particular, I am of the view that the regulatory framework will continue to evolve as we see an increase in the number of businesses in the digital asset space, including token issuers, applying to be regulated in and/or establishing operations from within The Bahamas.”

Future Focused

According to Sands-Feaste: “In addition to leveraging our core strength in trust and fiduciary services, other opportunities for growth in the financial services sector include the establishment of single and multi-family offices and of investment funds within a flexible but well-regulated framework.”

The new Bahamian economy however is much more than digital assets and companies being incorporated into the wide range of financial service providers in the country.  Wendy Warren, Managing Director with Caystone Solutions, comments that 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 deep well of financial services offerings in the Bahamas and underpinning the past, present and future growth and success of the sector are a couple of key attributes according to Warren. “When you look at The Bahamas, three words ring true …relevant, responsive and resilient,” she said. “We have proven time and again, whether it’s in the investment fund area or fiduciary services for wealthy families or individuals, that we are a relevant financial centre that recognizes the constant changes in the international landscape require us to be proactive in introducing compliant but innovative solutions. This type of responsiveness especially over the past 20 years is the basis for our resilience, one that continues to make the Bahamas a relevant and preferred international financial centre, and more importantly a highly responsive one to client needs and regulatory requirements. The global market is ever evolving. We are acutely aware that we must evolve with it.”  

Conclusion

The strong regulatory regime that characterises The Bahamian financial services sector ensures that the integrity of The Bahamas as an international financial centre is maintained. As a sovereign nation for more than 40 years, successive governments have consistently demonstrated the country’s commitment to international best practices, cooperation in the administration of justice, international tax transparency, anti-money laundering and the countering of financial terrorism initiatives. Bahamian regulators are well regarded and active partners with international peer groups and agencies.