For years The Bahamas, like many other jurisdictions, have been ‘running against the wind’ as the headwinds of successive global regulatory initiatives blow hard against the financial services landscape, seemingly intent on eroding competitive advantage and ability to lead the way in the international financial services marketplace.
While The Bahamas confronts forward and rearguard actions by G7 and other international bodies that threaten to impede its sustainability as a financial centre, the jurisdiction continues to persevere and move ahead, unperturbed by these efforts and focused on remaining compliant in delivering exceptional service and bespoke client solutions. It has been more than twenty years since the heavyweights of the world’s economic order began to impose rules that pose an existential threat to core elements of the economies of developing countries such as The Bahamas. Some of these actions were admittedly required. However, uniform global implementation and imposition of consequences for failing to comply remained uneven, with small developing states feeling most of the pressure. Nonetheless, The Bahamas with its limited resources makes every effort to meet these standards. It can now boast of being one of very few countries in the world to be compliant with all forty Recommendations of the Financial Action Task Force.
Three vital features are at the heart of what distinguishes The Bahamas as an international financial centre of significance: Expertise, Innovation and Location. Everything The Bahamas offers is defined by these words. Everything that comprises The Bahamas value proposition and continued success as a leading international financial services centre is guided by these distinguishing factors. In this article, we focus on the current regulatory landscape.
The strong regulatory regime that characterises the Bahamian financial services sector also ensures that the integrity of The Bahamas as an international financial centre is maintained. As a sovereign nation that celebrated fifty years of independence in July of this year, 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.
Private Wealth Management Pedigree
The Bahamas has a long tradition of private wealth management from as far back as 1936. Since then, the sector has grown and evolved to include large corporate trustees, boutique corporate trustees, and bespoke private trust companies as wealth management choices. In the development of the industry, trust companies entered the jurisdiction from all over the world, including the United Kingdom, Switzerland, Canada, the United States of America, and Brazil.
“The industry remains robust, with long established trust companies, while new trustee companies are also entering the country,” said Dr Earl Cash, Partner in Higgs & Johnson’s (H&J) Private Client and Wealth Management Practice Group.
“The evolution of the industry has also extended to the regulatory regime resulting in The Bahamas being regarded a well-regulated jurisdiction, both internally and externally, that is committed to transparency and the prevention of financial crime. The industry continues to evolve by expanding its legislative tools to support, assist and develop wealth creators, multigenerational beneficiaries and their advisors and planners,” affirmed Dr Cash.
The IMF recently dubbed The Bahamas the fourth largest offshore centre in the world. Paul Winder, Head of Fiduciary Products and Markets at Deltec Bank & Trust Limited, and CEO of Deltec Fund Services, stated: “This comes from the natural strengths of the jurisdiction – centrally located in the Western Hemisphere with a high standard of living – alongside competitive edges owing to well-educated human capital.” He added that “the jurisdiction’s proven deep bench of expertise thrives in a world of increasing regulation through our proactive approach, such as with the successful SMART and ICON fund structures.”
Introduced in 2003, the now globally regarded SMART Fund lives up to its name, according to H&J’s Christel Sands-Feaste, Partner (Securities, Investment Funds and Fintech Practice Group).
“SMART Funds are the ideal vehicle for investment managers seeking to establish a track record, or for smaller groups of investors wishing to invest through a regulated vehicle,” she said. “As an added benefit, SMART Funds can be licensed by the SCB or administrators holding an unrestricted licence under delegated authority from the SCB, and promoters are free to select administrators, investment managers or custodians located in The Bahamas or other recognised jurisdictions.”
The Bahamas offers a comprehensive range of private wealth management options and is particularly well regarded and respected for its robust and cutting-edge trust legislation. The advantages of placing assets into a Bahamian trust have long been known to individuals from many parts of the world, including those who are looking for a stable environment to protect their wealth from political instability, arbitrary legal and fiscal surroundings or other forms of coercion.
The robust nature and strength of Bahamian trust legislation is not just apparent in common law jurisdictions, according to Wendy Warren, CEO, Caystone Solutions. She noted that “historically, trusts always have been a foreign concept to civil law countries in the LATAM region. In our conversations with wealthy individuals and families, there is a growing appreciation and acceptance that trusts provide solutions worthy of the difficulties and unease caused by, but not withstanding the experiences, of willingly giving ownership of assets to a company whose owners, directors and managers can change at any time.”
Ms Warren also observed that “the pandemic has brought much uncertainty into wealthy people's lives. Beyond the disruption it created in doing business, the pandemic brought many of us face to face with reality of dealing with the deeply personal issues of unexpected loss of life or incapacitation, and possible discord among family members with respect to smooth, uninterrupted and conflict-free management, protection and ultimately the transfer of assets.”
Interestingly, according to Ms Warren, individuals who create great wealth in their own lifetimes are typically those who have firm views on the world, can make great intuitive leaps and show great creativity.
“They have great confidence in their opinions and have a clear understanding of the risks in their businesses,” she said. “Directing the management of their investments, or the way assets and values are distributed or devolved, is normally very important to these individuals. In summary, their lives and planning needs have become more complex. In most cases, Bahamian trusts, in their many forms, can efficiently provide the answer to these concerns.”
Highlighting the diversity of The Bahamas’ offerings, Ms Warren noted that “another alternative for an individual from a civil law country, is a Private Trust Company (PTC), which may be the ideal solution on a number of different levels, including control, influence, privacy, continuity, flexibility, education and empowerment, and cost efficiency. Finally, in all planning, we see the Bahamas Executive Entity (BEE) being used and considered more actively. The BEE is a perpetual entity for the sole purpose of carrying out executive functions, acting as a shareholder of a Private Trust Company or as a protector, enforcer, advisory board, or corporate director. The advantage of the BEE lies in its ability to remove unnecessary layers of ownership at the top level of wealth structures, to concentrate control in the right people who have the assurance of limited liability, and to generally facilitate proper governance within the structure to avoid the risk of family conflict damaging the family wealth.”
Climate Finance And ESG
Climate change is now a pressing problem that affects economies, societies and ecosystems worldwide. Banks, capital markets, FinTech firms, insurance carriers and investment firms will have to provide green and sustainable financial services on a greater scale in future. The Bahamas, with its strong financial centre, has recognised the importance of green and sustainable finance and has been participating actively in climate-finance initiatives.
The Bahamas recently passed two critical pieces of legislation to facilitate green finance initiatives in and from The Bahamas: The Climate Change and Carbon Market Initiatives Act, 2022 (CMIA) facilitates the Bahamas’ national carbon credit program. 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.
“The Bahamas’ unique topography consists of thousands of miles of mangroves which are more efficient at carbon capture than just about any other environment,” explained Aliya Allen, Partner with Graham Thompson. “As a result, it is believed 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 second piece of legislation is the Carbon Credit Trading Act, 2022 (CCTA), which provides a framework for registering carbon trading businesses in The Bahamas, including carbon trading exchanges, carbon registries, and carbon credit verification bodies. Such exchanges may make available for trading carbon products, including digital asset linked carbon products, carbon securities, or carbon derivatives.
“The Bahamas’ unique position as an important financial centre and host of thousands of miles of carbon sinks make it well-positioned to facilitate environmental impact investing within a sound and compliant regulatory environment,” said Ms Allen. “The Bahamas has been working to promote these initiatives in various sectors such as renewable energy, energy efficiency and sustainable transportation. The National Investment Funds Act 2023, which provides the legal architecture for the creation of one or more National Investment Funds (NIFs) owned by the Government of The Bahamas, provides that a NIF may be established for a project related to the blue, green or orange economy.”
The Bahamas is also participating in climate finance by developing a framework for sovereign carbon credits and the registration of carbon exchanges and other carbon businesses. Carbon trading can provide a financial incentive for countries and companies to reduce their greenhouse gas emissions and to invest in low-carbon technologies.
Dr Iyandra Smith Bryan, Chief Operating Officer at Quantfury Trading Limited, commented that the carbon market legislative initiatives reflect the importance and greater focus The Bahama places on ESG principles: “There is a growing consensus that capitalism needs to work for all stakeholders in order to create value that is sustainable for the long term. This growing consensus necessitates increasing protections that demand great governance, ingrained social considerations, and adherence to positive impact, not just within the local communities in which trustees, family offices, brokerages and other institutions operate, but within the global economy.
According to Dr Smith-Bryan, “ESG, as we know it, has evolved from a number of sustainability frameworks that took more of a philanthropic approach, implying that providers should do good because ‘it was the right thing to do,’ to a framework that is particularly favourable for regulators and the public by looking through the lens of business risks and accountability. The Bahamas continues to be at the forefront of innovation and evolution of societal expectations, adhering to global best practices and standards.” In this regard, she said “the Climate Change and Carbon Markets Initiative Act and the Carbon Trading Act, in addition to establishing a market framework to trade carbon credits, ensured The Bahamas' compliance with its obligations to reduce greenhouse gas emissions and its adherence to its commitments under the Paris Agreement.”
Delivering For A Captive Audience
Over the past ten years, the number of licenced captive insurance entities registered in The Bahamas has grown – at first very rapidly and in the last five years, steadily. As a result, growth has occurred in overall net premium volume along with the expansion in the number of parent company regions throughout the US and Europe.
“The growth in The Bahamas’ captive market is largely attributed to small-to-medium sized entities (SMEs) seeking to set up their own segregated accounts,” said Michele Fields, Superintendent of Insurance, Insurance Commission of the Bahamas. “This option has proven to be cost-effective for those SMEs, especially since they can and do outsource administrative and operational oversight to locally registered insurance managers, financial and corporate service providers, and other financial service professionals such as lawyers and accountants.”
In 2021, as part of its strategic plan to amalgamate legislation, the Commission began a review of the jurisdiction’s two principal insurance laws – the Insurance Act, 2005 and the External Insurance Act, 2009. The Commission’s intent in amalgamating those two pieces of legislation is to introduce categories of licences that emphasise the type of insurance business that the entity will be conducting, and the structure of the entity rather than where the policyholders are located.
“Amalgamating the legislation appropriately corresponds with our risk based supervisory framework, whereby as a jurisdiction we eliminate the perception of varying our supervisory oversight based on the current demarcation of international business versus domestic business,” said Ms Fields. “External insurers will have a similar level of supervision based on their risk profile. As such, our risk-based supervisory framework considers the size, nature and complexity of the institution, which determines the regulatory measures that we take, no matter whether the policyholders are in The Bahamas or abroad.”
“What keeps our jurisdiction ahead of other financial centres is its commitment to frank public–private partnerships,” shared Deltec’s Paul Winder. He went on to note that “the proposed 2023 revisions to The Digital Assets and Registered Exchanges Act, 2020, which positioned The Bahamas as a digital assets business hub, involved considerable dialogue between the Securities Commission of the Bahamas and the private sector, improving upon the original legislation by providing tailor-made laws supporting staking and stablecoin issuers. The Bahamas, realising the swift pace of change in the digital assets space, is staying ahead of the curve as it relates to regulation and compliance.”
“The type of dialogue which allows for regulation to remain in step with developments in the business sector is not strictly within digital assets, but the entire financial services ecosystem. Our client-first approach separates The Bahamas from similar financial centres in the Caribbean or Asia,” he said.
Chris Illing, Chief Commercial Officer at ActivTrades Corp, stated that in the realm of online trading companies, The Bahamas has embraced innovative solutions and practices to maintain its global competitiveness. “The Bahamas leverages its strategic geographical location as a gateway between North and South America, making it an ideal hub for international trade. Its proximity to major markets enables efficient connectivity and streamlined logistics, fostering a favourable business environment.”
The Bahamas continues to be nimble in the face of much change in the operating environment. This was emphasised by Mr Illing, who reflected on the fact that “the jurisdiction has actively responded to worldwide trends, such as the increasing demand for sustainable and ethical business practices. Since 2020, for example The Bahamas has implemented conscious policies and initiatives, encouraging trading companies to adopt responsible practices that align with international standards to protect the professional as well as the retail traders.
“By capitalising on its geographic location, responding swiftly to global trends, and embracing innovation, The Bahamas continues to attract and support online trading companies in an ever-evolving marketplace and foster a favorable business environment for other financial institutions and the clients that the serve,” he said.
Looking ahead, the priority for international financial centres – post-pandemic and in the face of unrelenting global regulatory change – must be retaining the trust and confidence in the clients they serve. ‘Know Your Jurisdiction’ (KYJ) means its essence, character, and offerings. This will lead to a clear choice as to where you should do business, and perhaps even choose to reside. It also gives a unique perspective on what should lie at the heart of a reputable international financial centre, what individuals, families and institutions should consider, and insights into a financial centre’s character and qualities.
If one scrutinises The Bahamas from a KYJ perspective, what emerges is an international financial centre cultivated by a culture based on experience, innovation, government commitment, an ideal location, exceptional lifestyle, and diverse product portfolio. In the words of Wendy Warren of Caystone Solutions, it is “a 360-degree offering with interweaving elements that support each other, creating a strong sustainable platform with the ability to provide solutions at any level.”
As more and more individuals choose to ‘follow their money’ with respect to where they live and work, The Bahamas’ tropical environment has become the preferred choice for many who yearn for an excellent quality of life whilst being able to manage their global affairs. “We see the client as a person first, not a transaction. We are not here just for the business, but to provide bespoke client services that meet individual needs. The Bahamas is a place that has an enviable perspective on what should be cherished and enjoyed in life and business,” assured Ms Warren.
The Bahamas is committed to keeping pace with the ever-changing global financial services environment. Ms Warren noted that “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 is consistently augmented. 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."
So The Bahamas continues to build on the expertise derived from over eighty years as a financial centre, its natural attributes, and a commitment to adherence to the highest possible regulatory standards. It is a jurisdiction that is agile in its response to global initiatives and emerging trends, embracing these opportunities through innovative solutions.
Dr. Tanya C McCartney
Dr. Tanya McCartney is a UK trained barrister and chartered banker who since 2016 has served as the CEO and Executive Director at the Bahamas Financial Services Board. Over the past two decades Tanya has distinguished herself as a hardworking professional with expertise in the law, regulatory and gaming compliance, risk management, banking, and international financial services. She holds a Doctor of Business Administration from Edinburgh Napier University (Scotland, U.K.) for a programme of work entitled “Perspectives on Leading change: Exploring Change Readiness Strategies used in the Bahamian Financial Services Sector”. Tanya was appointed to the Senate of the Commonwealth of the Bahamas in 2001 being one of the youngest persons ever appointed to the Upper House where she served for five years. She vied for a seat in parliament in the 2002 general elections. She is a former President and founding member of the Bahamas Association of Compliance Officers. She is the co-chairman of the Bahamas Chapter of the global Association of Certified Anti-Money Laundering Specialists. Tanya is also an adjunct professor in the School of Business at the University of the Bahamas. She has served on several government boards over the years including The Public Hospital’s Authority, The University of The Bahamas and currently serves as Chairman of The Police Complaints Inspectorate and Deputy Chairman on The Airport Authority.