Business in the Bahamas
MarketTalk with PwC Building a leading wealth management centre. What is PwC’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
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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. Let’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