Business in The
SPECIAL REPORT 2011
Looking Forward with The Bahamas Financial Services Board P. 4
Rapid Development with The Bahamas Securities Exchange P. 5
MarketTalk with PwC P. 6-7
The recipe for success What would you like to grow?
Auditing Accounting Business Advisory Services Corporate & Fiduciary Services Financial Advisory Services Insolvency Services Nassau Office: (T) 242-302-5300 (F) 242-302-5350 Freeport Office: (T) 242-350-4800 (F) 242-352-4810 PwC Bahamas, which has offices in Nassau and Freeport, is a member firm of the PwC organization. The firms of the PwC network provide industry-focused assurance, tax and advisory services to enhance value for clients. More than 163,000 people in 151 countries in PwC firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. â€œPwCâ€? is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgement or bind them in any way.
he Bahamas have always had the image of the idyllic hideaway where one can go to get away from everything and truly live the ‘barefoot experience’. With over 700 hundred islands,
rocks and cays, it is no wonder that everyone has the opportunity to find their spot of paradise. Tourism is still the main industry within The Bahamas, accounting for over 50% of GDP. This should come as no surprise when viewing the scale and diversity of the country’s tourism product. There are unique settings for every age group, with the Out Islands becoming more popular over the recent years for older, more luxury oriented guest. The Out Islands, which are located around New Providence, The Bahamas chief government and economic headquarters, offer an array of pink sand beaches, luxury resorts and villas, and most of all seclusion. The Bahamas gained independence in 1973. Until then, the country’s official motto was: “The Pirates Expelled, Commerce Restored.” As the country started to shed the image of being an outpost of the British Empire, that motto changed to “Forward, Upward, Onward, Together.” Throughout the last 37 years that is exactly what The Bahamas has done. By re-inventing their tourism and financial service products the country has done better than most regional counterparts. The Bahamas have carved a niche within the financial services industry, and is largely favoured by Canadian, American, Swiss and French banking entities. Currently there are over 250 licensed banks and trust companies in The Bahamas, with 60 institutions licensed to provide fund administration. It goes without saying that the major appeal in The Bahamas as a domicile for corporate and financial services is its tax-free status—no taxes are levied on personal income, capital gains, corporate earnings, sales, inheritance or dividends.
With one of the largest populations in the Caribbean, reaching approximately 342,000 people in 2009, The Bahamas doesn’t rely strictly on tourism to move the economy along. The financial services industry presently represents 15-20% of the GDP, with agriculture and construction also making fairly strong contributions. As one of the leading off-shore financial centres in the Caribbean, the financial services industry is primarily focused on private banking and wealth management. The wealth management industry in The Bahamas is widely known in Europe for being one of the strongest in the West and has long been recognised as a reliable place to set up a trust, register a company or gain access to global capital markets. Many of the longer established private banking entities in The Bahamas are Swiss and French based, bringing years of
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experience, contacts and a strong reputation to The Bahamas financial services industry. The Bahamas Financial Services Board (BFSB) is the driving force behind the financial services industry and the main overseas promoter. The BFSB is currently targeting new markets like South America and China for investors, instead of relying solely upon the historical trade and investment partners like the UK, US, and Canada. The Bahamas feels their strength and history in wealth management and company formations will allow them to access these new investors who are worried about country political stability and banking security, which is currently important for South American clientele. The Bahamas has entered into 22 Tax Information Exchange Agreements (TIEA’s) to date and has a quick response to new countries seeking an agreement. The private sector, lead by BFSB, ensures that a foreign direct investor in any sector fully understands and gets access to the service providers and any other information or resources they need. One of their main success stories is the newly re-financed, luxury resort metropolis Baha Mar project. With over $2.5 billion contributed by the Export-Import Bank of China, and the building expertise of the China State Construction Engineering Corporation, the resort will include 7 hotels, the largest casino in the Caribbean, and will create approximately 8,000 jobs. While The Bahamas’ government focus over the last few years has been in diversifying the tourism and financial services industry, growth has been slow during the economic crisis. While the country has been affected, there has been progress within the financial services community. For example, SMART funds have gained more interest in recent times, as these specialty types of funds offer advantages for the international investor, and safe funds such as these hold attractive qualities during volatile periods. The Bahamas has also recently amended legislation to open up the insurance sector and will begin to try and gain a more robust presence in captives and re-insurance. Many insurance companies within The Bahamas are in a good position to expand regionally, where the personal insurance carriers have had a lacklustre performance as of late. The country faces a competitive field in these new markets identified for growth, but with a strong base in traditional wealth management and private banking, the sector should do well, especially once the legal sector allows international firms to operate within The Bahamas, which has long been rumoured. Rejuvenated by new potential in the financial services industry, the possibility of a new medical tourism market and new financing behind several stalled real estate projects, the mood is bright in the Bahamas, and not just because of the sun and surf.
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Editor: Robert Rimsky Project Manager: Kuljit Kaler Regional Director: Joseph Bove Design: The Arland Group
The views expressed in Business in The Bahamas Special Report 2011 are not necessarily those shared with the publisher, Global Investment I Limited. Wishing to reflect the true nature of The Bahamas, the editor has included articles from a number of sources, and the views expressed are those of the individual contributors. No responsibility or liability is accepted by Global Investment I Limited for any loss to any person, legal or physical, as a result of any statement, fact or figure contained in Business in The Bahamas Special Report 2011. This publication is not a substitute for advice on a specific transaction.
Business in the Bahamas
The Bahamas Financial Services Industry
Looking Forward By Wendy Warren CEO & Executive Director Bahamas Financial Services Board
he Bahamas continues to focus on being a high quality destination for owners of capital. This focus is captured
in the shared vision of the government and private sector for the way forward: “To be a globally competitive international business centre for wealth management, capital investment in the Americas and emerging markets, and residency”. This vision brings to bear the unique strengths of The Bahamas: 1. Our history as a trusted partner for the international business community and families worldwide, due in large part to the outstanding record of political stability, progress and stewardship, status as an independent territory providing an efficient basis of common law, and the longstanding commitment and continuity of its people and government to the industry and its clients. 2. Our ideal location at the cross roads of the Americas in a time zone that is convenient for most of the major centres in the Americas. 3. Our physical resources of land, premises and fit-for-purpose infrastructure all located in one of the most idyllic settings in the world.
A Wealth Management Centre
The Bahamas’ strength is rooted in its long history in providing financial services since the 1930s, and reinforced by the jurisdiction’s ongoing commitment to maintain and grow its presence as a provider of high quality financial services. This historic involvement has created a jurisdiction that can easily be defined as established, progressive and welcoming for financial services and residency.
Established: Its established role and expertise in private banking and trust services also has given birth to a comprehensive and compelling array of financial services that includes private banking, estate planning, asset management and fund administration services; The Bahamas also provides services to the international capital markets, and to the insurance and maritime industries. Corporate registry and legal and accounting services are at the core of the multitude of services available in The Bahamas. Progressive: The jurisdiction continues to demonstrate foresight through responsive, progressive developments to meet the requirements of an increasingly sophisticated financial services marketplace. Providing specific legislation addressing the manner in which Private Trust Companies (“PTCs”) may be established and operated in The Bahamas is an example of the jurisdiction’s responsiveness. The SMART fund is another example, based on the recognition that a one-size fits-all-solution is not suitable for many clients. These legislative initiatives along with the Foundations Act, Purpose Trust Act, and the amendment to the Perpetuities Act have solidified the country’s wealth management services. Welcoming: The Bahamas is not only home to more than 250 banks and trust companies which enjoy long standing relationships with clients from around the world. In recent years, as more and more individuals have chosen to “follow their money” with respect to where they live and work, The Bahamas also has become the preferred choice for many who have adopted this way of life. With a streamlined application process for Economic Permanent Residency (EPR), the ability for individuals to work and live in The Bahamas has become even easier and more attractive. A predictable and userfriendly EPR application process, combined with the country’s physical resources and infrastructure, enhances the Bahamas’ environment as a location for individuals and Family Offices as well as for more institutions to consider the establishment of subsidiary operations in the country.
A Well Regulated Jurisdiction
Regulation in The Bahamas also has served the industry well. Policy makers and regulators are committed to open and ongoing dialogue with the private sector. This has created an environment designed to encourage the continued growth of the sector through adherence to internationally accepted regulatory principles, and efficiency in their administration.
A Hub for Capital Investment
The Government is committed to building an economic environment in which free enterprise can flourish. In this regard, the National Investment Policy is designed to support an investment friendly climate and guarantees the complementarity of Bahamian and overseas investments. The Bahamas is ideally located at the crossroads of the Americas. It is in the same time zone as New York with enviable proximity to the US, and Central and South America. Its physical resources are conducive to con ducting international business both effi ciently and effectively. This includes: • Information Communications Technology—three separate, fully redundant, self-healing fibre optic cables for global connectivity. • Modern office facilities. • Data Protection legislation at the OECD Standard. • Business continuity options. • Cost competitiveness. • Ease of access, air linkages and Freeport’s transshipment and free trade zone status are functional attributes that very few regional competitor jurisdictions can match.
The Way Forward
Arising from its long-standing investment in people, policies and the environment, The Bahamas will continue to be a leader in financial services and domiciliation/residency. It will ensure that favourable attributes for locating and servicing operational subsidiaries and assets of corporate entities wishing to undertake business or make private capital investment in the Americas are fully explored and understood by the owners of capital. n
Business in the Bahamas
Rapid Development The evolution of the Bahamas securities market. Can you provide us with a brief history of the exchange?
The Bahamas International Securities Exchange (BISX) was incorporated September 1999 as a for-profit company organised to have a commercial and regulatory focus. BISX was the brainchild of Mr. Ian Fair and a group of progressive-minded financial services professionals who believed that the development of a securities exchange in The Bahamas would be a valued addition to both domestic investors as well as international financial services providers. In May 2000 BISX launched a domestic market for the listing and trading of local public companies, and launched its international segment with the opening of a mutual funds facility in April 2001. In June 2008, BISX began the listing of secondary issues of companies that had carried out initial public offerings on the Exchange; BISX is now able to list common shares, preference shares, corporate bonds and warrants.
What listings do you typically see? What are the reasons for most entities listing?
In April 2001, BISX introduced a Mutual fund listing facility targeted at meeting the needs of international investors, who may require the extra visibility afforded by a listing on an established securities exchange as a basis for their choice of investment vehicle. Over the past 5 years, BISX has seen most listings come from this mutual fund listing facility as the listing of investment funds has turned into a viable option that Bahamian financial services providers are able to offer their clients. BISX’s listing fees are benchmarked against other international financial centres to ensure that our fees remain competitive with those of other jurisdictions. Additionally, BISX has maintained a high level of service to compliment its amenable fee structure.
The BISX was recently recognised by the UK’s HMRC. What expectations does the exchange have for attracting new listings or dual listings?
The recognition by the UK’s HMRC is a significant achievement for BISX that sends a strong message to the international com-
munity that BISX is an organisation that maintains rules, operating procedures and standards that are acceptable to the international community. BISX expects that this recognition makes the Exchange and the jurisdiction more attractive to mutual fund and other wealth management and investment structures that would benefit from being listed on an Exchange with the HMRC designation.
The BISX has also recently become a member of IOSCO what overall benefit does this have on the exchange in terms of both operations and attraction?
BISX became an Associate Member of IOSCO as a means of demonstrating that the BISX Rules (the body of rules that guide the actions of the Exchange) were of an international standard. The BISX Rules were initially designed and continually updated to ensure that they remain in compliance with international best standards with regards to trading, issuer’s continuing obligations and the conduct of securities business. BISX is proud of the BISX Rules and of the recognition that IOSCO has given the Exchange by designating BISX as an Associate Member. BISX is also proud to be regulated by the Securities Commission of The Bahamas, which is an Ordinary Member of IOSCO. One of the most interesting developments with regards to IOSCO was the signing by our Securities Commission onto the IOSCO Multilateral Memorandum of Understanding (MMOU) as a B Signatory. The Parliament of the Commonwealth of The Bahamas is proposing a new Securities Industry Act that when enacted will elevate the Securities Commission to an A Signatory. Recognitions such as these by international agencies are a credit to this jurisdiction. International investors and issuers value these memberships, and The Bahamas and BISX have gained from the comfort that investors find in operating in a well-regulated jurisdiction.
What are the future prospects for the BISX to list debt instruments? BISX was pleased to list the Fidelity Bank (Bahamas) medium term notes in September 2008. These were the first debt instru-
Keith Davies CEO Bahamas International Securities Exchange
ments to be listed and traded over the Exchange. On June 18, 2010, BISX carried out a secondary listing of the Government of The Bahamas US$300 Million 6.950% Notes due 2029 that are traded in Luxembourg. Each of these events represented a milestone for the Exchange as they both demonstrate the ability of the Exchange and Bahamian issuers to list debt instruments. BISX is pursuing a two-pronged strategy towards the establishment of a debt market on the Exchange. BISX is targeting the secondary issues (including bonds and preference shares) of already listed issuers while at the same time continuing to develop the BISX market environment in preparation of the move of Bahamian Government Debt to trading over the Exchange.
With so many important accomplishments over the last two years, in what areas do you see the most potential for growth for the BISX?
BISX anticipates new listings will potentially come from two main areas: • The continued maturation of our domestic market which retains the potential to add new listings to the BISX main market and through the development of the Small Alternative Market (SAM Market) a new BISX initiative designed to encourage the development of small business in The Bahamas. • The increased attractiveness of BISX to international financial services providers looking for the benefit of placing their investment structures on a well regulated exchange, in a well regulated jurisdiction. As mentioned above, the IOSCO recognitions do play a part in making the jurisdiction and the Exchange more attractive to these providers. n
Business in the Bahamas
MarketTalk with PwC Building a leading wealth management centre. What is PwCâ€™s primary focus in The Bahamas?
Within financial services, entities operating within the private banking and wealth management space is led and dominated by entities that are related to financial institutions based in Switzerland. This trend commenced at the dawn of the 1980s and has been sustained ever since. It is quite possible that the well known confidentiality rules that underpin the relationship between a bank and its customers are what attracted the Swiss banks but the industry has developed beyond those reaches to a well regulated financial services centre with an emphasis on private banking and wealth management. The services we provide to private banking and wealth management entities comprise audit of the financial statements and non audit procedures on the qualified intermediary systems.
How has the financial services industry in The Bahamas evolved over the last 15 years? 15 years ago means we are starting in the mid-1990s; a time when the industry started to undergo significant changes; increased specialisation, growth in regulations and internal and external pressures to change behaviour in how business is conducted. Particularly significant was the turn to increased specialisation in wealth management and private banking and we lost market share in the investment funds sector. In the mid-1990s, the financial services industry of The Bahamas was comprised of the offshore investment fund sector and the banking sector. The offshore investment fund had developed in response to a demand for alternative investment products from citizens of the developed western world. Much of this growth was uncoordinated and we were slow in developing a coordinated framework and brand for investment funds that could be marketed to the global investment fund industry. Consequently, the growth experienced in the 1990s had reversed at beginning of 2000. Presently the offshore investment fund sector is starting to show new life with niche products and I would cite the SMART funds
Clifford A. Johnson, Managing Partner, PwC Bahamas
as a particular example thereof. What is interesting about the SMART funds (there are 6 approved templates) is how they are being used by the private banking and wealth management sector to meet the needs of their clients. It is expected that the investment fund sector will continue to grow and more niche products developed. In the banking sector, the evolution had begun by the mid-1990s because external pressure was being exerted on policymakers cease the practice of licensing entities to book deposits in the Bahamas entity but did not have any other activity in the Bahamas. These entities did not have a physical presence and consequently their contribution to national economic activity was deemed minimum. This all culminated in a new policy directive in 2001 requiring all licensees to have a physical presence resulting in a number of booking centre banks to terminate operations. This resulted in the banks specialising in private banking and wealth management activities emerging as the dominant specialty for the financial services industry of The Bahamas. It also became clear the industry needed to be more coordinated and the Bahamas Financial Services Board was established to coordinate the public and private sector initiatives. Letâ€™s now turn to regulations. The Central Bank of The Bahamas is the principal regulator for banks and trust companies and in the mid1990s had a very relaxed regulatory regime. However in response to crisis in the global banking industry the Basle Committee of Regulators developed and issued a structured framework for banking regulators and risk-based guidelines that pertained to licensees. Consequently, in a relatively short period, the level of regulations for banks and trust companies has increased significantly. However it must be said the Central Bank has been very judicious in introducing regulations by tempering the international standard to the national environment.
How has The Bahamas maintained its position as the off-shore leader in wealth management and private banking?
Being a leader in the provision of any off-shore financial services is not always viewed as a good thing particularly in the light of the pressure being brought to bear by certain major developed countries. However The Bahamas should gladly bask in the sunlight of this acclaim because it has been involved for a long time. Firstly we have been in the business for a long time therefore when customers in the traditional banking capitals of Europe were looking for a domicile with a tradition of client confidentiality, experience in providing fiduciary services, no direct taxation and political stability, The Bahamas was the natural choice. Secondly, The Bahamas has been responsive to the needs of the industry by ensuring its legislative framework is current which facilitates the development of products desired by the private banking and wealth management sector. Whether it is perpetuity trusts, foundations, or private trust companies, we have been proactive in creating the legal framework for their establishment. Thirdly, we have a competent work force in the jurisdiction to service the business being done in the jurisdiction. This includes the granting of work permits to employ persons with specialised skills. Generally there is a perception that the granting of work permits are a rarity in The Bahamas but the reality is quite different. It is likely that will be tested in the near future as private banking and wealth management entities seek to employ more specialised skills for their operations in the Bahamas. I am supportive of granting the work permits because experience has shown that within a relatively short term (say 5 years), the specialised skills are acquired by nationals who step into the jobs. Fourthly, being an independent nation with a stable political culture and pursuing fiscal policies that have no income, corporation and inheritance taxes has been an advantage. However, while being an independent nation with a stable political culture will continue to be positive attributes, the absence of direct taxation will be
Business in the Bahamas
less of a factor in retaining and attracting new private banking and wealth management assets. That is because the owners of those assets will increasingly want to be tax compliant with their fiscal authorities and increased pressure for Bahamas entities to report to the fiscal authorities.
What new markets offer opportunities for The Bahamas in wealth management and private banking?
Private banking and wealth management is all about managing the assets of the world’s wealthy. Therefore in seeking to identify new markets one would obviously look to those countries that are generating the new wealth of the world and the BRIC countries (Brazil, Russia, India and China) come to everyone’s mind. Three of those countries are in Asia and one, Brazil, is in the western hemisphere. Therefore given the geographical location of The Bahamas, it makes perfect sense to target Brazil and it is my understanding that a specific country program is being developed for that particular market place. However we should not ignore the markets of the emerging wealth creation centre’s in Asia, particularly China because wealth is being created at a pace unparalleled in the modern world. In seeking to exploit opportunities available in the new markets we must also become more knowledgeable about the language, culture and tax policies of those markets to ensure that we have a better understanding of the people and that the products being developed and marketed will allow the citizen to remain in compliance with the tax policies of their domicile.
iar with the common law legal framework is not particularly familiar with the trust structure and consequently we have created the foundation the concept of which they are much more familiar. There are differences in types of investments, use of corporate structures and most importantly their attention to the activity in the account.
The Bahamas currently has signed 22 TIEAs. What kind of progress has this allowed The Bahamas to make in the eyes of the OECD and western economies? Tax information exchange agreements (TIEAs) are part of the new landscape created by the OECD in its apparent attempt to “punish” countries with no form of income tax or corporation tax defined as harmful tax practices. The Bahamas has responded to the call by the OECD to demonstrate its commitment to level the playing field by executing TIEAs with at least 12 or 13 countries by a stated date. The Bahamas has done more than the minimum and thus should be perceived by the pow-
ers that be as a cooperating country, and it probably is seen as such for the time being. Unfortunately the goal post will soon be moved and thus The Bahamas will have to execute other agreements with another group of countries so as not to be labeled as engaging in harmful tax practices. What the country must now do is plan and think strategically so it is ahead of the demands of the OECD while still protecting its financial services industry. A principal disadvantage of TIEAs is that the benefits flow one way, that is, to the counterparty. The Bahamas without income tax or corporation tax cannot enter into the traditional double taxation agreements (DTAs) where benefits flow to both parties. We need to fashion another type of DTA that allow for benefits to also flow to The Bahamas. A potential advantage is the creation of service opportunities for tax professionals from various countries to advise the wealth management and private banking professionals on tax reporting requirements for its customers. n
Along with providing comprehensive, quality oﬀshore brokerage and investment services at an aﬀordable cost, we also throw in three special beneﬁts: KNOWLEDGE, INTEGRITY, PROFESSIONALISM. That’s Gibraltar, because we know you take your privacy and investments seriously.
How does the South American client differ from the traditional clients based in Europe?
All clients whether based in Europe or South America seek certain common attributes in their private banking and wealth management providers: 1. Confidentiality in the conduct of their affairs 2. A good performance record 3. Diversity of investment products 4. Security of their assets That being said it must be recognised that the South American client being less famil-
Call or visit us today for even more advantages.
214 Lagoon Court, Sandyport
PO Box SP-63886 Nassau, Bahamas
Tel: 1 (242) 327-GGSI (4474)
Fax: 1 (242) 327-8875
Business in the Bahamas
Bahamas Insurance Industry Driving Economic Growth Insuring a bright future.
he Insurance industry is ranked the third largest industry in The Bahamas and contributes strongly to the nation’s economic expansion. The industry
is divided into two separate sectors; the Domestic Market and The International (Captive) Market. The Bahamas is currently home to over 52 domestic and international insurance companies, making the country second to only Barbados in terms of penetration within the Caribbean basin. The sector, both domestic and international is seeing positive growth. The oldest insurance company in The Bahamas, BAF Financial & Insurance (Bahamas) Limited, part of the BAF Global group of companies, has been providing Health, Life and Investment solutions to residents of The Bahamas for nearly a century and more recently offering local solutions in the Cayman Islands and the Turks and Caicos Islands. Priding themselves on their ability to offer a wide range of solutions in every category, BAF Global has indeed risen from humble beginnings to rank among the top providers across all three categories. Jason Borrino, VP at BAF Global notes: “The Bahamas has a large and professional skill base supporting the local insurance industry. When you find a base of assets in terms of skilled insurance companies and professionals in a well served market, it’s natural that the desire from shareholders for greater value will encourage companies to look outside the domestic market at other opportunities. BAF Global has operating subsidiaries in The Bahamas, Cayman Islands and the Turks and Caicos Islands. As the oldest operating insurance company in The Bahamas, geographic expansion is natural for us. Having spent 90 years building a skilled workforce, reputation and knowledge base, we are actively seeking to export the brand and expertise into other markets.” Furthermore, The Government of The Bahamas has taken steps to bolster its financial services sector through the enhancement of legislation pertinent to inter-
national products that are in high demand. This is evidenced by the introduction of the External Insurance Act, 2009 (“EIA, 2009”), which came into force on August 19, 2009 followed by its accompanying regulations. With new insurance legislation now in place, The Bahamas is firmly open for business for captive insurance. Currently there are more than 5,000 captives worldwide. Collectively captive insurance companies have net written premium in excess of $50 billion, capital and surplus of more than $100 billion and total invested assets of more than $225 billion. Captives can be domiciled and licensed in a wide number of domiciles including The Bahamas, which serves as a Captive Insurance domicile. Captive insurance companies are formed primarily because of economic reasons, with a focus on risk management and risk financing; there is little to suggest that this sector cannot be re-established as a core element within the Bahamian financial services industry. The establishment of an External Insurance Company in The Bahamas by an onshore entity would result in a reduction of the costs associated with insuring its risks in addition to exemption from taxation in The Bahamas, and well structured asset protection. Jason Borrino sees The Bahamas as a promising jurisdiction for the captive insurance market; “The Bahamas is well positioned to re-emerge as a serious player in the International insurance market. Speaking from experience the Bahamas is a great place to do business and a wonderful place to live and raise a family. In cost terms it competes well with the other more established centres, but has so many advantages in terms of a safe and stable political and legal environment, sensible Immigration policy, home grown insurance expertise and a close proximity to major markets including the US and Latin America.” Leonna International Insurance Brokers Ltd is a relatively recent entity providing
insurance consulting and employee benefits solutions for the corporate world. They provide a wide range of services for an international clientele. Services include captive feasibility and management, employee education, research and performance solutions and administration outsourcing. Jason Borrino said this about the partnership “Leonna International has chosen to use The Bahamas as its home jurisdiction from which to serve a wide international clientele. Leonna International has partnered with BAF Global. Our strategy is to utilise all those people, knowledge and resources grown over 90 years at BAF to support Leonna International in the wider insurance marketplace. It’s a key element of our strategy to use the complementary nature of these two operations to build a local, scalable and deeply resourced business, but to do that with a local context ensuring that we meet our client’s needs from local resources first. It should be a win for all stakeholders; clients get a deeply integrated solution and to some extent a “one-stop shop” of real on the ground expertise and the jurisdiction benefits from further employment and the in-sourcing of value adding activities and the local community become aware of and involved in the International side of the business which benefits the local economy.” The Bahamas certainly does have several strengths that will allow the insurance industry to grow and start competing closely with jurisdictions that have been home to larger insurers for years. With the government focus on building the sector, support from the BFSB and a pro-active private industry, along with the recent passing of favourable legislation there is a mood of excitement in the industry. When long established companies like BAF and new, internationally oriented entities like Leonna International create partnerships and strategic alliances, the market will progress at a rapid rate. n
Business in the Bahamas
A Wealth of Experience Makes The Bahamas a smart choice.
n the 21st Century, it is rare to find established financial centres that are able to lead the way in a specific industry over an extended period of time. With increased
competition in both mature and emerging markets, most financial centres move on and create new instruments, vehicles or enter new markets every 15 years. The Bahamas has been a leader and innovator within the private banking and wealth management sector for over 40 years, preserving and creating wealth for individuals and entities the world over. With leading global banking institutions amongst those that have a presence in The Bahamas, names like Credit Suisse, Lombard Odier, Sociéte Generale and UBS demonstrate that the country is still the leading financial centre in the western hemisphere when it comes to private banking, wealth management, and trust services. The Bahamas is on the OECD white list of countries that have substantially implemented agreed standards for tax information exchange. With 22 Tax information exchange agreements in place and several more in various stages of completion, The Bahamas TIEA negotiation programme will continue to ensure the country’s commitment to international standards is upheld, while helping to strengthen business opportunities between The Bahamas and other countries. The introduction of the Investment Fund Act in 2003 paved the way for new, non-traditional types of funds. While the Act defined four classes of Fund: Standard, Professional, Recognised Foreign, and SMART, the first three are traditional and based on existing structures whereas the SMART fund is a more flexible and recent product. Ivanhoe Sands, Managing Director of Crédit Agricole Suisse (Bahamas) stated, “Private banking is an important part of the economy here, we need to remain innovative and keep ahead through developing products and
close relationships.” Known as the Specific Mandate Alternative Regulatory Test Fund, the SMART fund is unique in the way that it is designed around the private wealth management industry. The first major benefit of a SMART Fund is it does not require a lengthy traditional offering document; rather a simple term sheet, the required contents of which are defined by each template. Secondly, assuming all equity investors agree in advance, the fund can waive the requirement for an annual audit. Thirdly, an administrator has the power, if granted by the local regulator, to issue the SMART Fund license. Most of the benefits have to do with saving time and money and reducing risk—the need to draft extensive offering documents takes a great deal of time and money. Via the removal of any uncertainty with the time of the fund launch by repositioning files with the regulatory authority, the marketers of the funds are granted more time to build a client base, and also incur less risk to offer before the launch date is set in stone. (Information Provided by BFSB 2009) Like most sectors of the financial services industry worldwide, the last two years have seen major changes in the wealth management industry. Two things are common whether in Switzerland or The Bahamas: clients want less risk in their portfolio and want a more hands approach to managing their money. To this regard Mr. Sands added: “We have seen less risk taking on the part of clients. The North American market, which is our targeted area, has been more conservative. Typically there are two types of clients: young ones who tend to take more risk, and retirees who invest more in principal guaranteed products which offer almost zero interest rates.” There has also been a call for much more detailed reporting and auditing. In reality, this is expected in an unstable marketplace and as most private banks operating in
The Bahamas have been around for 100+ years, they are well positioned to ride out the storm. Another factor in the changing climate is an increase of firms targeting the South American and Asian markets. With most of the money and investments handled by private banks in The Bahamas still based in Europe and North America, there is a general sense that certain markets are saturated and new clients can be had in markets like South America, where people fear the same things Europeans feared fifty years ago. The need to find stable destinations for family wealth or a company’s future is still a necessity in many parts of the world. Whether facing an unstable government, corruption, safety issues or volatile financial markets, the need for a world recognised jurisdiction with top quality specialised service providers will always be there. It is for this reason that The Bahamas will continue to thrive as a jurisdiction of choice for wealth management and private banking, but could also become more recognised in other areas of finance, like the fund industry with the introduction of innovative financial instruments like SMART Funds. The test of the financial services sector in The Bahamas will be the ability to grow other lines of business. This will be tough to do without opening up the Bahamas Bar Association to allow foreign legal firms to operate in the market, which is why many people in the industry are calling for this major reform. Although going through an obstinate period with an indeterminate endgame, it must be said that not many jurisdictions can compete with the wealth of experience and prestige that the private banks bring to The Bahamas—and so it seems evident that the next forty years will go by somewhat like the last. The wealth management industry in The Bahamas shall certainly retain its staunch international influence, and continue to cultivate new players in an atmosphere ideal for entrepreneurial gamesmanship. n
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Published on Sep 21, 2011
The Bahamas has been a long established destination for Wealth Management and Tourism. This report looks at The Bahamas ability to stay ahea...