Wednesday, April 30, 2014
Wednesday, April 30, 2014
The theme speaks to the challenges faced by IFCs following the financial crisis and the necessary and fundamental adaptation required as a result. IBFS represents what is an ongoing and conscientious effort by The Bahamas to evaluate its core strengths and embrace innovation and adaptation to carve out new niches and advantages in wealth management, highly specialised investment vehicles and business services.
Certainly, one cannot ignore the fact that the far reaching changes in international regulatory standards heralded by the revised FATF recommendations, FATCA and other initiatives require a balanced approach — one that recognises that clients operating in a compliant manner have the right to financial confidentiality. Indeed, The Bahamas has been fully engaged in the multilateral organisations’ work in ensuring compliance with international standards.
As a result, The Bahamas achieved a largely compliant rating in the Phase 2 Peer Review process of the Global Forum, indicating its commitment to the practical effectiveness of its TIEA obligations, and intends to ensure the effective implementation of the FATF revised standards. The Bahamas will conclude its Model 1 IGA with the US in respect of FATCA shortly, further indicating that the jurisdiction is committed to ensuring its reputation as a compliant and responsible member of the international community.
A stable political and social environment also contributes to The Bahamas success as an IFC. A 2013 edition of Caribbean Monitor reported that The Bahamas received one of the highest scores in the Caribbean in Business Monitor International ‘s (BMI) proprietary Short Term Political Risk Ratings, touting the Government’s “stable footing and adherence to constitutional norms”. The Bahamas’ rating was reported as one of the highest in the Caribbean with a score of 72.5, above the regional average of 64.3 and well above the global average of 64.4. The report highlights the social and political stability of The Bahamas and the continuity of policy embraced by successive governments.
This continuity couldn’t be more apparent than in the public-private sector approach to financial services dialogue which is strikingly different in The Bahamas. Both parties are in lockstep, fostering industry innovation in not only the country’s core strength of private wealth management but in other sectors as well.
It’s not that The Bahamas is trying to be all things to all people. Far from it. Rather, it continues to build and lever on its core strength of private wealth management by adding parallel, compatible services and offerings that recognise emerging market needs.
Historically The Bahamas has been linked to European based business and private banking. Sector evolution can now be seen in the development of compliant funds business and re-entry into the captive insurance market, both targeting non-traditional markets.
This accompanying geographical evolution now places LATAM markets – especially Brazil – in The Bahamas’ direct line of sight. The Brazilian focus is paying off with a wide range of Bahamas-based firms making headway in the market. Intelligence, gleaned from its close attention to and understanding of the market.
Such nimbleness is embedded in the DNA of financial institutions and individuals in The Bahamas. It is also directly related to the country’s sovereignty. Independent since 1973, The Bahamas is able to “chart its own course” in the development of legislation and policy which aide the sector. It always does this mindful of its international obligations.
The Bahamas SMART Fund, the Bahamas Executive Entity (BEE) and the captive insurance sector are emblematic of its nimbleness.
Product & Service Innovation
Smart Funds were introduced by The Bahamas 10 years ago but, like their name implies, they continue to be wise to market requirements. A concept created through an industry think tank, the vehicle provides industry participants with the means to offer clients regulated funds which nevertheless cater to specific solutions, domiciled in a premier international financial centre. The specific requirements for SMART Fund models are designed by means of regulator-approved templates, each of which creates a new SMART fund model. Any institution or person with a business case can submit a template for approval.
The number and type of SMART funds remain an open opportunity, effectively creating a mechanism for promoters to approach the regulator for approval of a specific business case and for that fund, if approved, to be allocated a risk based licensing and supervisory regime tailored for its use. This template then is able to be used by other funds, fitting the parameters and requirements of the template.
The latest model, formally Smart Fund Model 007 (SFM007), but popularly dubbed the Super Qualified Investor Fund, may be offered on a private placement basis to up to 50 ‘super qualified’ investors who must make a minimum initial investment of USD500,000. The new model allows a greater number of investor achieving greater economies of scale than any other template, and simplifies the qualifying criteria by providing for a minimum investment rather than qualifying on a net worth basis.
The Bahamas Executive Entity (BEE) on the other hand provides a nimble and innovative approach to the dynamics of current wealth management needs. It solves complex governance issues in fiduciary and wealth management structures, particularly with respect to share ownership in Private Trust Companies and identifying persons willing to act in any number of governance roles in wealth structures. The advantages of the BEE lies in its ability to remove unnecessary layers of ownership at the top level of wealth structures, to concentrate control in the right people who have the assurance of limited liability, and generally to facilitate proper governance within the structure to avoid the risk of family conflict damaging the family wealth.
While the BEE builds on the jurisdiction’s core areas of strength and expertise and SMART Funds differentiate The Bahamas from other funds locations, captive insurance marks The Bahamas re-entry into a sector that has received a boost from market friendly legislation and encouragement and support from leading players in the captive sector. Marsh, a leading captive manager, has applied for a license, in acknowledgment that The Bahamas is poised to become a player of substance in the captive sector. The Bahamas continues to see interest from other captive managers interested in the cost competitiveness and the commitment of The Bahamas to growing the sector.
Cell legislation is a prime example of the jurisdiction applying its wealth management to the captive market. The Bahamas’ cell legislation provides robust statutory protection to ensure that the assets and liabilities of each account are truly separate and distinct. Cell captives benefit from the natural economies of scale created within such structures and the regulatory regime in The Bahamas is a clear response to the demand for cost effective means of entering into captive or self-insurance for small to medium sized enterprises while satisfying international standards.
The captive environment in The Bahamas is supported by a highly experienced and diversified asset and wealth management industry. The jurisdiction has developed a reputation as a leader in these areas, which has enabled it to facilitate synergies with the insurance market. There are any number of jurisdictions that have similar positive attributes, but few of them will have all of the combined advantages The Bahamas offers as a long-established international financial services centre.
What should be evident by the current and recent changes to the local business environment is that The Bahamas remains a jurisdiction committed to increasing its value proposition to its institutions and the clients they serve. It understands that the new global economic reality requires a consistent commitment to improvement of its platform by being adaptive, innovative and indeed smart.