About our Priorities
It is currently estimated that The Bahamas’ GDP for 2023 was BSD 14.3 billion in nominal prices1, with our population estimated to consist of some 413,000 people2. Our financial services industry including our international wealth management business remains a significant contributor, underscoring its importance. For a country of our size, on the one hand, this level of production is notable. Framed in terms of a global economy of more than USD 1 trillion3 and a global population of some 8.045 billion4, however, the true scope of the challenges, and opportunities for us are given proper perspective. For such a small country relying on engagement with the highest levels of international clientele and sophistication in financial services and products, it becomes clear that regulatory excellence and trustworthiness must be the order of the day.
For the Securities Commission of The Bahamas, regulatory excellence is not just a matter of the number of laws, regulations and rules in place, or their quality vis-à-vis compliance and alignment with international standards and best practice. Nor is it about the number of prosecutions we execute, or sanctions we levy. These are important metrics, but only in so much as they are indicators of our true success towards our goals and responsibility to achieve desired regulatory outcomes for the investors and consumers we must protect, for the financial system we are partly responsible to regulate and for the markets where our constituents operate. We also have a responsibility to sustainable economic development, which calls us to facilitate market innovation responsibly — notwithstanding our commitment to the aforementioned goals.
The 2024 Examinations, Enforcement and Supervisory Priorities address key regulatory trends and other observations as outlined in this document. These priorities aim to stem a trend of noncompliance with key reporting obligations potentially impacting our international standing and jurisdictional reputation, reign-in abuses of local investors by persons using criminalised financial schemes, stop the abuse of local consumers of certain non-bank financial services and to assess the significant uptick in new business in the burgeoning digital asset sector. Their usefulness on our journey to regulatory excellence will depend upon a collaborative effort between ourselves, local and international financial regulators and law enforcement agencies, the customers and clients our registrants and licensees service, and vitally, our registrants and licensees themselves.
The Commission publishes its examinations, enforcement and supervisory priorities with the primary goal of facilitating a transparent, collaborative approach to achieving regulatory excellence by providing industry practitioners an opportunity to review and improve operations to ensure compliance in the critical areas identified. Importantly, they also allow other partners and stakeholders — the local and international regulatory and law enforcement community, policy makers and the public — insight into our focus areas and provide transparency about the regulatory risk trends we are observing.
We are pleased to share these priorities and invite you to send comments or other input through your preferred channels and connections to the us directly to oed@scb.gov.bs, subject, “2024 Priorities”.
1 Bahamas National Statistical Institute Press Release: “Advance Estimates for Gross Domestic Product for 2023”, 27 March 2024
2 www.worldometers.info/world-population/bahamas-population/ (4 April 2024)
3 IMF World Economic Outlook (October 2023), www.imf.org/external/datamapper/PPPGDP@WEO/OEMDC/ADVEC/WEOWORLD
4 State of the World Population Report 2023, “8 Billion Lives, Infinite Possibilities; the Case for Rights and Choices” UNFPA Division for Communications and Strategic Partnerships, p164, www.unfpa.org/sites/default/files/swop23/SWOP2023-ENGLISH-230329-web.pdf
Christina Rolle, Executive Director
Introduction
The Securities Commission of The Bahamas (the Commission) is responsible for regulating and overseeing securities, investment funds and the capital markets, financial and corporate service providers, digital asset business, and carbon credit trading in The Bahamas. Established in 1995, the Commission is committed to the growth and development of a vibrant, competitive financial services sector in The Bahamas — one that is renowned for regulatory excellence.
The Commission deploys a risk-based approach to supervision under which supervisory, examinations and enforcement priority is given to the areas the Commission identifies as presenting the greatest risk to the public, the financial system, the capital markets, and the reputation of the jurisdiction as an international wealth management centre. The Commission also leverages its ability to recommend and make improvements to the suite of legislation it administers, and its investor and consumer education initiatives to protect investors and consumers, maintain fair, efficient, and transparent markets, and reduce systemic risk.
The Commission is responsible for the administration of the following pieces of legislation:
• Securities Industry Act, 2011 (SIA)
• Investment Funds Act, 2019 (IFA)
• Financial and Corporate Service Providers Act, 2020 (FCSPA)
• Digital Assets and Registered Exchanges Act, 2020 (DARE Act)
• Carbon Credit Trading Act, 2022 (CCTA)
For persons under the Commission’s regulatory remit, it also has responsibility for the administration of the Financial Transactions Reporting Act, 2018 (FTRA).
EXAMINATIONS PRIORITIES
EXAMINATIONS PRIORITIES
The Examinations Department (Examinations) is responsible for on-site examinations of all registrants and licensees. This includes processing applicants to act as the Commission’s agents for the onsite examination of financial and corporate service providers, and reviewing any examinations they conduct on behalf of the Commission.
Under the Commission’s risk-based regulatory approach, Examinations’ priorities are determined based on the businesses and business activities deemed to pose the greatest risk to the financial markets, the financial system, and to investors and consumers of financial products and services. In this regard, 2024 Examinations priorities aim to address trends of non-compliance with regulatory obligations regarding AML/CFT/CPF, Common Reporting Standards, and the application of the Rate of Interest Act. They also respond to a significant increase in digital asset business registrations and aim to mitigate risk from this burgeoning sector by ensuring compliance with the provisions of the DARE Act.
To deter and discourage AML/CFT/ CPF breaches across all registrants and licensees, the Commission will commence the enforcement of financial penalties for cited AML/ CFT/CPF breaches.
1. Anti-Money Laundering/Countering Terrorism Financing and Proliferation Financing (AML/CFT/CPF) Risk-Based Framework
On-site examinations statistics indicate rising AML/CFT/CPF breaches, some of which are recurring. As a result, Examinations will focus on a review of AML/CFT/CPF-related frameworks and practices of registrants and licensees including:
• The conduct of self-risk assessments.
• The demonstration of an AML/CFT/CPF risk-based approach to facilities and transaction monitoring.
• The demonstration of the implementation of robust risk-management frameworks.
• Adequate, robust performance of know-your-customer (KYC) procedures, to ensure:
• required KYC information is being kept up-to-date;
• records are being maintained in compliance with legislative requirements; and
• appropriate risk-management systems are in place to determine whether a facility holder or beneficial owner is a politically exposed person (PEP).
• Proper records maintenance and ongoing reviews thereof.
• Enhanced monitoring and due diligence procedures around PEPs.
• Adequate processes and procedures around client complaints.
• Performance of ongoing training for relevant personnel.
• Compliance with regulatory reporting, regulatory filings and registration requirements.
LEVYING OF PENALTIES FOR AML/CFT/CPF BREACHES BASED ON TEST RESULTS EXTRAPOLATION
To deter and discourage AML/CFT/CPF breaches across all registrants and licensees, the Commission will commence the enforcement of financial penalties for cited AML/CFT/CPF breaches. Samplebased testing results of on-site examinations will be extrapolated to the full population of client relationships and penalties will be assessed based on the extrapolation.
During 2023, Examinations observed 358 breaches in the conduct of 39 routine examinations of registrants/licensees. Of the breaches 223 were AML/CFT/CPF, and 135 were related to other matters. The figures have been updated as at 19 April 2024 following supervisory review of breaches. A breakout of the AML/CFT/CPF breaches appears in Figure 1 below.
Annualfilingrequirement by31December(IOEAMA)DisclosuretoFIU (ref.TerroristProperty)PoliciesandProceduresRiskRatings/ RiskAssessmentsTrainingOn-goingMonitoringPEPsMLRO/ ComplianceFunctionClientComplaintsFunctionRecordKeepingRecordsLocation andRetention KYC Maintenance NotificationofRegisterstoSCBMLRORegistrationwithFIU UnrestrictedAccessto RecordsbytheCOBooksandRecords
VerificationofClients
Figure 1: Breakout of 2023 AML/CFT/CPF breaches
2. Financial Service Providers — Money Lending Activities
The Commission’s on-site examinations have highlighted the need for enhanced oversight and review of money lenders, specifically in terms of compliance with the Rate of Interest Act, which legislatively mandates that money lenders charge no more than 20 percent simple interest on funds lent to the borrowing public. The Commission will focus on the following areas:
• Sector business operations and performance of data gathering.
• Policies and procedures and internal control environment.
• Loan requirements for loan issuances.
• Firms’ financial statements and loan portfolios.
• Borrower demographics and profiles.
• Policies and procedures surrounding debt collection and management.
• Due diligence and risk-management processes and procedures.
• Corporate governance policies and procedures.
• AML/CFT/CPF training initiatives.
3. Digital Asset Businesses — Digital Asset Exchanges and Wallet Service Providers
During 2023, the Commission experienced an uptick in registration applications for digital asset businesses (DABs) and registered 12 DABs during the period, a 240 percent year-on-year increase from 31 December 2022. Given the rise in new registrants and the recent changes to the DARE legislation, the Commission has prioritized conducting a comprehensive review of DABs in the jurisdiction, with specific focus on the following areas:
• Sector business operations and performance of data gathering.
The Commission’s on-site examination reviews have highlighted the need for enhanced oversight and review of money lenders, specifically in terms of compliance with the Rate of Interest Act.
• Firms’ policies and procedures and internal control environment.
• Firms’ financial statements, financial position and performance.
• Due diligence and risk-management processes and procedures for onboarding and ongoing monitoring of clients, facilities and transactions (i.e. ongoing, routine verification of the client database against World Check, Lexis Nexis, OFAC sanctions list, etc.).
• Corporate governance policies and procedures.
• AML/CFT/CPF training initiatives.
• Processes, policies and procedures in relation to internal controls around:
• cybersecurity risks (performance of routine penetration testing exercises);
• digital asset custody controls;
• segregation of duties controls;
• business continuity planning and disaster recovery (annual testing thereof); and
• initial coin and token offerings and assessment of the firm’s internal control environment generally.
• Policies and procedures addressing the handling of customer complaints.
• Fraud prevention and detection controls and mechanisms.
• Compliance with the FATF Recommendation 16 (the Travel Rule) as adopted in The Bahamas, which requires the maintenance of specific data by both the sending and receiving financial institution for cross-border transfers (wire transfers and digital asset transfers) of values greater than or equal to USD 1,000 (or its foreign currency equivalent).
4. Common Reporting Standards (CRS)
In keeping with The Bahamas’ international compliance and commitments in the fight against global tax evasion and the protection of the integrity of tax systems, The Bahamas has prioritized ensuring the compliance of financial institutions operating in or from within the jurisdiction, with the CRS requirements as approved by the Council of the Organisation for Economic Co-operation and Development (OECD) on 15 July 2014.
Financial institutions operating in or from within The Bahamas have a duty under CRS to report required information to the competent authority. The competent authority thereafter automatically exchanges such financial account information with other jurisdictions on an annual basis. As such, to ensure strict adherence with this data gathering and automatic exchange function, the Commission undertakes as a priority to perform a closer review of the following, inter alia:
• The registrant’s/licensee’s policies and procedures manual to confirm whether documented policies and procedures regarding the automatic exchange of financial account information are maintained.
• The registrant’s/licensee’s maintenance of records (in English) in compliance with the provisions of the Automatic Exchange of Account Information Act, 2016, Automatic Exchange of Financial Account Information Regulations, Guidance Notes, and the Common Reporting Standards.
• Whether the registrant/licensee has registered with the Competent Authority (Ministry of Finance) and has any reportable accounts under Section VIII of the Common Reporting Standards.
• Confirmation that the information returns were filed with the Competent Authority on or before 30 September.
SUPERVISION PRIORITIES
SUPERVISION PRIORITIES
The Supervision Department (Supervision) is responsible for processing applications for the registration and licensing of persons wishing to conduct registrable and licensable activities under the legislation administered by the Commission — the SIA, IFA, FCSPA, DARE Act and the CCTA (the Acts). Additionally, it is responsible for the off-site monitoring and supervision of market participants under the Acts. The department is also responsible for the review and registration of prospectuses for public offerings and private placements.
To facilitate the transition to a risk-based approach to supervision, the Commission established a Risk Analytics Unit in 2018 with staff dedicated to solely monitoring registrants’ and licensees’ operations, financial position, and other risk factors, and formulating internal risk ratings. However, the staff of the Risk Analytics Unit are now fully merged with the Supervision Department, further strengthening its capacity to effectively leverage the risk-based approach to supervision at both the initial application stage, and throughout the life cycle of a registrant or licensee.
Supervision is currently structured as two units, each specializing in specific legislation, with one unit responsible for the SIA and IFA and the other unit responsible for the FCSPA, the DARE Act and the CCTA. The department has prioritized several initiatives for 2024 to enhance its operational capacity, enhance risk-based monitoring, improve constituent compliance with reporting obligations, and ensure full implementation of recently introduced legislation. Each of these carry implications for registrants and licensees.
1. Compliance with Reporting Obligations
The Commission continues its efforts to focus on strict compliance with reporting obligations to mitigate risks arising from low compliance with submission of financial reporting, self-risk assessments and annual continuing obligations.
FOCUS ON AML/CFT/CPF BREACHES
The Commission has observed a trend of non-compliance with AML/CFT/CPF obligations among its constituents in recent years. As a result, Supervision has prioritized the identification of these breaches, with a view to reversing this trend to safeguard the financial system from contagion. Registrants and licensees can expect the issuance of penalties for breaches of AML/CFT/CPF provisions in all applicable Acts and ancillary legislation.
LEVERAGING SELF-RISK ASSESSMENTS TO IMPROVE REGULATORY COMPLIANCE
Self-risk assessments are an important tool that, amongst other things, position registrants and licensees to identify high-risk areas of their operations and steps to mitigate them.
Section 5 of the FTRA requires every financial institution to conduct a self-risk assessment of its operations. The Commission will require each registrant and licensee to submit the self-risk assessment by a stipulated deadline and will assess submissions to ensure that risks are adequately mitigated, and appropriate controls are implemented.
FOCUS ON OTHER REPORTING OBLIGATIONS
The Commission will focus on investment funds reporting of material statistical information and performance reports. The Commission intends to apply penalties for non-compliance with reporting obligations pursuant to amendments to the IFA, IFR and the SMART Fund Rules.
2.
Enhancing Operational Capacity
RELAUNCH OF THE CoRI PORTAL
The Commission commenced a digital transformation project in September 2022 to ease doing business for constituents and improve operational efficiency and regulatory effectiveness. A key feature was the implementation of an interactive portal for the submission of regulatory filings and applications online — the Compliance and Regulatory Interface (CoRI) filings portal.
After its introduction, the portal was reworked to better meet the needs of the Commissions’ registrants and licensees. CoRI was relaunched on 31 January 2024. Registrants and licensees now have a real-time profile overview with application submission statuses, accessible records of payments, and notifications of upcoming and overdue payments. The portal is designed to be a centralized location for collection and monitoring of registrants’ and licensees’ filing obligations and will enhance the Commission’s capacity to carry out the administration of the legislation under its remit.
Registrants and licensees will be responsible to ensure that they are properly set-up in the CoRI portal, and able to make eligible submissions using it. The Commission aims to ensure that, moving forward, it has the authority to require electronic submission of certain filings utilizing a prescribed platform.
3. Enhancing Risk-Based Monitoring
FOCUS ON NEWLY REGISTERED ENTITIES
The Commission will conduct further off-site reviews of the effective implementation of risk frameworks and the corporate governance policies and practices of newly registered entities which, based on risk factors and the date of commencement of operations, are not candidates for on-site inspection. In this regard, particular attention will be given to the following:
• Review of the initial 12-18 months of operations to assess the nature of risks and amount of business undertaken by the registrant or licensee.
• Review of the implementation of controls and procedures for assessing financial and operational risk.
• Review of strategic risks including corporate governance implementation and competence.
• Review of firm specific and marketwide risks.
RELAUNCH
OF THE KPMG SOFY PLATFORM
In August 2019, the Commission implemented the KPMG Sofy platform, a cloud-based filings portal, to automate the process of gathering data from registrants and licensees to inform risk assessments. The platform also aimed to bridge new and historical data. The Commission has been improving upon the existing Sofy platform, which will relaunch in 2024 to gather data to prioritize high-risk registrants and licensees. The data collected will inform key indicators for AML/CFT/CPF risk, prudential risk and customers, products and markets risk.
RELAUNCH OF DESK-BASED THEMATIC REVIEWS
Supervision will reintroduce thematic reviews during the year with a focus on AML/ CFT/CPF, data protection and cybersecurity measures. These reviews will allow for the prioritization of high-risk registrants and licensees. Supervision is also developing and will conduct desk-based reviews of licensed investment funds to assess performance, calculation of NAVs, communications to investors, compliance with reporting obligations and other material factors in relation to the investment fund.
The Commission will develop risk reports that will guide thematic reviews, based on trends observed as a result of enhanced risk-based monitoring.
4. Implementation of New Legislation
SECURITIES INDUSTRY BILL, 2024
The Commission has been engaged in an overhaul of the Securities Industry Act and published a new Bill for public consultation in December 2023. In anticipation of the passage of the Bill, Supervision will focus on transition provisions and engage with the industry to ensure that matters introduced by the legislation are adopted and adhered to, and will provide clarification as needed.
FINANCIAL RESOURCES RULES
The Commission will also introduce Financial Resources Rules for registered firms under the Securities Industry Act. The Commission will conduct training to facilitate registrants’ and licensees’ understanding of and compliance with the Rules’ financial resources calculations and reporting requirements.
FINANCIAL AND CORPORATE SERVICE PROVIDERS ACT, 2020
Following the passing of the Financial and Corporate Service Providers Act, 2020, Supervision took extensive steps to regularize all firms requiring a financial or corporate service provider license. Firms and attorneys acting as registered office/registered agent to IBCs without being licensed would be operating in contravention of the FCSPA and will be referred to the Enforcement Department; the Registrar General will be notified accordingly.
DARE ACT LICENSEES REVIEW
A complete review of existing licensees under the DARE Act will also be conducted in 2024, with specific focus on operational capacity, AML/CFT/CPF trends, and financial position.
ENFORCEMENT PRIORITIES
ENFORCEMENT PRIORITIES
The Enforcement Department (Enforcement) is responsible for enforcing the laws administered by the Commission, investigating unregistered and unlicensed individuals and operations, coordinating the settlement of regulatory breaches by registered or licensed entities, and addressing criminal and civil court matters involving the Commission, among other things.
The Commission will escalate the practice of imposing penalties on registrants and licensees who are found to be in breach of their regulatory requirements, particularly regarding AML/CFT/CPF breaches.
Enforcement’s priority areas identified for 2024 were informed by several factors, including trends of non-compliance with regulatory obligations, particularly related to AML/CFT/ CPF observed by other departments of the Commission, the prevailing regulatory and compliance priorities established by global standards setters, formal and informal complaints, and other sources including news articles and trends observed by regulators and watchdogs, locally and internationally.
1. Imposition of Penalties with a Focus on AML/CFT/CPF Breaches
Historically, the Commission has leaned on its moral suasion to effect greater compliance with regulatory requirements among its registrant/licensee base. This approach, however, has not always yielded acceptable compliance rates among constituents. This has been the case with AML/CFT/ CPF breaches where, despite the potential negative impact on the operations of the registrant/ licensee, the integrity of the financial system and the reputation of the jurisdiction, the Commission continues to observe high non-compliance rates. As a result, the Commission will escalate the practice of imposing penalties on registrants and licensees who are found to be in breach of their regulatory requirements, particularly regarding AML/CFT/CPF breaches.
To support this priority initiative, the Enforcement Department will pursue the collection of any fines or penalties, including automatic administrative penalties due to the Commission, stemming from regulatory breaches. Registrants/licensees should be familiar with and ensure they comply with their regulatory filings requirements and other obligations, and with the Commission’s policies regarding the assessment of penalties. This includes automatic administrative penalties and the assessment of administrative penalties for infractions of the FTRA5 .
2. Criminal Prosecution for Financial Schemes to Reduce the Incidence of Fraud and Scams
The Commission has observed a marked increase in the incidence of fraudulent or scam programs in recent years. The Commission moved to formally criminalize such abusive financial schemes with the passage of the FCSPA, in the interest of protecting the public from falling prey to investment fraud. Under the legislation, persons who launch, establish, promote, market or advertise a financial scheme, or invite or recruit others to join or participate in a financial scheme commit an offense6
Despite this, the Commission continues to observe trends of abuse of investors in The Bahamas via financial schemes. As a result, Enforcement will actively pursue prosecution of perpetrators.
5 Assessment of Automatic Administrative Penalties Policy Ref: PSs135.2-170217 Filing of Audited Financial Statements Policy- Ref: PSs135.2-170217(2)
6 Financial and Corporate Services Providers Act, 2020, s46(2)
3. Regulation of All Money Lending Activities as Required by the FCSPA
Non-bank money lending is an important element of financial activity that has allowed many residents to access funding to meet their financing needs and has impacted a broad swath of the local population. In 2020, non-bank money lending was defined in the FCSPA and as a result this activity expressly requires licensing under the updated legislation. Furthermore, through its on-site and off-site supervision and examination programs, and other investigations and information, the Commission is aware of lending activity by non-bank money lenders that may be illegal and abusive to consumers of this financial service. The Commission will focus its enforcement efforts on those persons in the business of non-bank money lending as defined under the FCSPA, with a view to protecting consumers and bringing those activities into compliance with the legislation.
4. Continued Improvement of Communication and Coordination with Stakeholders
The implementation of the Commission’s criminal authority depends on coordination and cooperation with organizations such as the Financial Intelligence Unit and relevant divisions of the Royal Bahamas Police Force. The Commission has prioritized communication and coordination with all organizations essential to its functions, particularly regarding criminal sanctions under the legislation within the Commission’s remit.
5. Ongoing Training in the Investigation of Online Fraud and Related Schemes
Within the last few years, the Commission has observed a significant increase in online fraudulent schemes, most recently involving digital assets. In keeping with strategic objectives surrounding capacity building to meet current and future organisational needs, the Commission has prioritized training key Enforcement staff in crypto-tracing investigations. The training will significantly enhance the Commission’s ability to analyse on-chain activities and ultimately to pursue the prosecution of persons using digital assets to commit or facilitate criminal activity.
LEGISLATIVE AND POLICY PRIORITIES
LEGISLATIVE AND POLICY PRIORITIES
The Office of Legal Counsel (OLC) is responsible for providing legal advice to the Commission, and for the review and development of laws under the Commission’s administrative remit and financial sector legislation generally. OLC also assists with the development and review of the Commission’s guidelines and policies relating to these laws. Additionally, OLC is responsible for managing matters of international cooperation and overseeing the conduct of international assessments and reviews in which the Commission participates.
The Policy and Research Unit of the Office of the Executive Director serves as the Commission’s research arm. The unit has responsibility for developing research and policy papers to support the Commission’s legislative framework and other initiatives, providing regulatory policy recommendations on matters that affect the securities and capital markets based on research and analysis, and maintaining the Commission’s FinTech hub, SCB FITLink.
Legislative and policy priorities are primarily guided by the Commission’s strategic objectives. They are also informed by observations of deficiencies in the legislative framework, including as regard the Commission’s capacity to effectively carry out its regulatory functions.
1. Securities Industry Bill, 2024
The SIA, 2011 provides the framework for the structure and operation of the Commission as well as the oversight of the industry. While the legislation has been amended on several occasions, it has not undergone a holistic review and update since its promulgation. The Commission therefore determined to overhaul the current framework to ensure it remains robust and agile, compliant with IOSCO Objectives and Principles of Securities Regulation, the FATF 40 Recommendations and international best practice; and is conducive to business development. As a result, the Commission developed the Securities Industry Bill, 2024, which was issued for public consultation between 29 December 2023 and 1 March 2024.
The Securities Industry Bill addresses various new areas. It introduces a new framework for the supervision of derivatives, it empowers the Commission to declare a digital asset or class of digital assets a security/class of securities, it establishes a regime for the management of systemic risk, where relevant, and the offence of “Tipping off”. The proposed amendments meet the noted objectives and include provisions to:
The Securities Industry Bill addresses various new areas. It introduces a new framework for the supervision of derivatives, it empowers the Commission to declare a digital asset or class of digital assets a security and establishes a regime for the management of systemic risk where relevant, and establishes the offence of “Tipping off”.
• update the enforcement framework to enable the Commission to respond effectively in the event of breaches;
• establish a framework for the imposition of sanctions for statutory breaches without a prior hearing;
• update current provisions that clarify the Commission’s ability to generally access records and request information from regulated persons;
• provide the foundation for a framework for voluntary liquidation of marketplaces; and
• establish the continued jurisdiction of the Commission after a registration is surrendered.
2. Investment Funds Bill, 2024
In 2019, the Commission overhauled the investment fund legislative regime with the implementation of the IFA. Since the enactment of the legislation, the Commission has conducted a further review of the legal regime and determined to amend the legislation to address various gaps and ambiguities and to ensure that it addresses the regulatory needs of today’s investment funds industry. The proposed amendments to the legislation will further modernize the regulatory framework, with a focus on meeting international standards and facilitating greater ease-of-business for market participants.
The proposed amendments clarify:
• the regulatory regime for investment fund managers;
• requirements that all persons licensed, and all parties related to investment funds be fit and proper;
• the appropriate assignment of the obligation to calculate Net Asset Value (NAV); and
• the application of various regulations relative to the foreign fund administrator and the licensed administrator.
3. Digital Assets and Registered Exchanges (DARE) Bill, 2024
The Commission’s approach to developing the legislative and regulatory framework governing the digital asset space has been to ensure that it remains current, relevant, comprehensive and in line with international standards and best practice. This requires ongoing and continuous review of industry trends and the regulatory matters relevant to the space, including evolving international standards.
The Commission began its assessment of the DARE Act in 2020. The exercise led to the Commission pursuing amendments to the legislative framework to accomplish the key objectives of robust riskmanagement, enhanced consumer and investor protection, and a legal and regulatory environment conducive to market development.
The following additional proposed amendments further update and enhance the identified objectives and include provisions for:
• the establishment of a full regulatory framework for stablecoins;
• clarification that only digital assets classified as financial assets fall within the purview of the DARE Act;
• the establishment of a disclosure regime for networks offering staking;
• clarification of requirements to segregate customer assets;
• the introduction of a foundation for the establishment of an appropriate regulatory capital framework;
• the prohibition of the issuance of privacy tokens or other tokens with identity and transaction obfuscating characteristics; and
• the establishment of specific financial reporting obligations for DARE Act registrants.
The Commission issued the draft proposed amendments to the DARE Act for public consultation between 25 April and 31 May 2023, and developed a further draft that was informed by the input received from the consultation process.
4. Updates to the Digital Assets Policy Statement
The Digital Assets Policy Statement (the Statement), published in August 2022, primarily explains the considerations the Commission reviewed in developing the existing digital asset and regulatory framework, most notably the DARE Act. Additionally, the Statement describes the Commission’s philosophy regarding the regulation of digital asset businesses, examines the risks and threats associated with digital asset activities, and recommends the respective measures to mitigate those activities. The mitigation measures are in accordance with internationally accepted best practices and recommendations.
Due to the development of the DARE Bill, 2024, the Commission intends to update the Statement, which will reinforce its approach to implementing world leading digital asset regulations that are guided by robust risk-management, consumer and investor protection and orderly market growth and innovation. The updated policy statement will also summarize and explain digital asset businesses’ requirements under the new legislation.
5. Financial and Corporate Services Providers (Money Lenders) Rules
The Commission issued the first draft of the Financial and Corporate Services Providers (Money Lenders) Rules for consultation in 2019. A revised version of the Money Lender Rules was issued for consultation in 2022, to account for the passage of the FCSPA, comments received, and other developments since the initial consultation. The Commission received numerous comments and feedback at the conclusion of the second round of consultation. In response, the Commission conducted a series of meetings and discussions with stakeholders. As a result of these meetings, the Commission determined to further review the proposed framework to account for concerns about the potential impacts of the regulatory framework on the industry, public and potential consumers.
The Commission will, therefore, continue to deepen its understanding of the industry with a view to developing a framework that will facilitate an effective, well-regulated non-bank money lending sector. The Commission will continue its consideration of the development of Money Lenders Rules with a view to determining a holistic, robust, risk-based and competitive framework. The Commission is also considering the development of “Fairness in Lending Codes” to address its consumer protection concerns.
6. Environmental, Social and Governance (ESG) Reporting Paper
Since the adoption of the 2015 Paris Agreement on climate change, international standards setting bodies have become increasingly focused on climate risk and its effects on the financial sector and the overall financial stability of global markets. Increasingly, investors in financial and capital markets are factoring the potential impacts public issuers and financial institutions have on the environment and society, and their governance practices, when making investment decisions. However, the introduction of environmental, social and governance (ESG) reporting requirements carries implications for increased reporting complexity and costs and raises questions about the determination and monitoring of standards, amongst other things.
The Commission will finalize a research paper which explores the recommended ESG best practices and principles of select standards setting bodies, and benchmarks select jurisdictions that have enacted ESG disclosure requirements.
INVESTOR AND CONSUMER EDUCATION PRIORITIES
INVESTOR
The Commission’s investor education and communications unit is a component of the Office of the Executive Director and leads in the development and implementation of the Commission’s investor and consumer education initiatives. Driving the Commission’s approach is the principle that financially literate and informed investors and consumers of financial products are best empowered to grow their wealth and improve their financial well-being, which includes capacity to identify and avoid falling prey to fraudulent financial schemes and other misconduct.
The priority focus areas for 2024 stem from the Commission’s strategic objectives and the its observations regarding trends of abuse of investors in The Bahamas via financial schemes.
1. Increase Residents’ Ability to Protect Themselves from Falling Victim to Investment Fraud
The Commission has prioritized efforts to address the proliferation of financial schemes and will leverage its investor and consumer education resources to support this priority. The Commission will raise awareness of investment frauds and scams with a focus on how to identify them and increasing awareness that financial schemes are not victimless crimes. This effort will also prioritize increasing awareness that promoting financial schemes is expressly criminalized in the FCSPA.
2. Promote the Benefits and Liabilities Associated with Getting Professional Investment Advice
The Commission will focus on informing the Bahamian public about the pros and cons, benefits and liabilities associated with using a professional investment advisor, including how to use the Commission’s website to understand if a person is registered with the Commission, and informing the public about the protections available under the law when engaging with registered representatives.
Abbreviations & Frequently Used Terms
CCTA Carbon Credit Trading Act, 2022
CFATF The Caribbean Financial Action Task Force
CO Compliance Officer
CRS Common Reporting Standards
DAB Digital Asset Business
DARE Digital Assets and Registered Exchanges (Act)
FATF The Financial Action Task Force
FCSPA Financial and Corporate Service Providers Act, 2020
FIU Financial Intelligence Unit
FTRA Financial Transactions Reporting Act, 2018
IBC International Business Company
IFA Investment Funds Act, 2019
IFR Investment Funds Regulation
IOEAMA International Obligations (Economic and Ancillary Measures) Act
IOSCO International Organization of Securities Commissions
KYC Know Your Customer
MLRO Money Laundering Office
OECD Organization for Economic Co-operation and Development
OLC Office of Legal Counsel
PEP Politically Exposed Person
SIA Securities Industry Act, 2011
APPENDIX II
Website Links for Additional information
The primary and subsidiary administration administered by the Securities Commission of The Bahamas can be found at the following links:
LEGISLATION
www.scb.gov.bs/legislative-framework/acts-and-regulations/ www.scb.gov.bs/legislative-framework/rules/
ENFORCEMENT
www.scb.gov.bs/enforcement/
INVESTOR EDUCATION
www.scb.gov.bs/investor-education/
SCB FITLINK
www.scb.gov.bs/accordions/scb-fitlink-fintech-hub/
SUPERVISION
www.scb.gov.bs/supervision/
