International financial centres such as The Bahamas find themselves balancing the demands for transparency and disclosure of information against compliant clients’ legitimate concerns about the attendant loss of privacy and personal safety. Service providers within The Bahamas are also challenged to balance the increasing costs associated with new reporting requirements against clients’ sensitivity to ever higher fees. In a period of increasing global uncertainty and political instability, however, it is believed that new opportunities arise if changing conditions are handled deftly and swiftly both within the private sector and by the government and regulatory bodies in The Bahamas.
The Bahamas has consistently sought to address the demands for transparency and cooperation and within the last three years has made significant strides in its compliance with norms and standards set by the international community: in August 2015, The Bahamas’ Foreign Account Tax Compliance Agreement Act with the United States (FATCA) came into force, and the Automatic Exchange of Financial Account Information Act (theCRS) came into force in January 2017.
Assuaging concerns raised by tax-compliant clients of overly broad or insecure disclosure of personal financial information has been a goal of the Bahamian government and the private sector. To that end, The Bahamas proposes to enter into bi-lateral agreements with countries that have been certified by the OECD as meeting the requisite data protection and confidentiality standards. Respect for legitimate concerns about clients’ privacy – on which their very safety may depend – is anticipated to be a critical element in this country’s decision-making processes around the bilateral treaty process.
The high costs of compliance with the new international disclosure standards does pose a vexing problem for all IFCs and The Bahamas is no exception. The collection and dissemination of timely, accurate data as mandated by the recently enacted legislation requires substantial investment in both personnel and hardware/software. Such spending often requires service providers to scale back and even forego investment in more obviously productive, revenue-enhancing opportunities, which creates additional headwinds for the financial services sector. It has also proven enormously difficult to find the right balance between compliance and commerce; the sweet spot where clients’ financial business moves forward smoothly without undue impediment caused by rapidly spiralling compliance demands.
More generally, broad risk aversion, especially in larger institutions, can cause bottlenecks that frustrate reasonable commercial activity. This has proven especially daunting in the area of correspondent banking, which, whilst it hasn’t posed a systemic issue in The Bahamas, the loss of relationships in this area is sapping regional economies with an impact not much less than that felt by the international financial sector. The Bahamas is not alone in feeling such pressures, and has undertaken substantive outreach efforts within the region so as to be part of a larger coalition of countries hoping for open and impartial dialogue on the issue.
Having acknowledged the challenges, it can be said that there remain opportunities as well. The Bahamas has a strong history of public-private partnership in the financial sector, which has made it possible to work interdependently on the development of disclosure legislation as well as legislation which supports the financial services industry and its’ clients’ needs. Consequently, the financial services industry, its regulators and the government continue to move forward quickly with well-judged, balanced industry-specific initiatives. Notable in this regard is the continuing development of the investment fund legislation to address not only international best practices and standards but also the creation of new and improved vehicles and norms of operation.
Further, close proximity to major onshore financial centres (including a shared time zone with New York, Toronto and Miami) as well as a wealth of human capital, allow The Bahamas to maintain a competitive position as an attractive place to do business.
Finally, efforts continue – including not only legislative initiatives but also infrastructure investment as well as the development of increasingly sophisticated lifestyles and amenities options – to make The Bahamas an attractive domicile for clients seeking residency for the mind and management of family offices, investment advisory services and transnational oversight operations. While uncertainties and challenges remain, they also create an environment ripe for innovation and The Bahamas has not only the experience but also the expertise to capitalize on this opportunity.
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