Wednesday, February 17, 2016
Wednesday, February 17, 2016
Here follows remarks by Minister of Financial Services Hope Strachan at The Bahamas’ chapter of the Society of Trust and Estate Practitioners (STEP) luncheon February 15, 2016 at the British Colonial Hilton Hotel in Nassau:
Miss Marie Cargill, President of The Bahamas Chapter of STEP
Officers and Members of STEP
Distinguished Ladies and Gentlemen
Firstly, I would like to thank you Marie and your board for inviting me to bring remarks at today’s luncheon meeting. I intend therefore, to give you an overview of current events in the Financial Services Sector. I am aware of the many concerns that you have about the industry and the tremendous challenges that confront us on an ongoing basis due to external pressures. I am certain that what you would want today is reassurance; reassurance, that the Financial Services Industry will survive and that your investment in your education will translate into sustainable jobs and opportunities. This government has demonstrated our commitment to the Industry by re-establishing The Ministry of Financial Services and by our financial support of the Bahamas Financial Services (BFSB) and our aggressive marketing initiatives which is a primary focus of my Ministry.
The marketing initiatives of the Ministry of Financial Services have been intricately tied to the schedule of STEP and last year we participated in quite a number of conferences including STEP Caribbean (St. Maarten), STEP Latam (Brazil and Sao Paulo), STEP Miami, STEP San Diego, STEP PCA Awards London, England and STEP Asia. We were able to reach literally thousands of persons through these initiatives taking our message about the Bahamas Advantage, the unique products and services we offer and the wonderful cadre of professionals like yourselves who add incredible value to this Premier class Financial Centre, that is The Bahamas.
This year we intend to be even more aggressive in our marketing initiatives trusting that this will translate into viable business opportunities for the sector. We will be returning to most of these jurisdictions but we wish to encourage more private sector partners to join us in these efforts as there is definitely strength in numbers.
Attendance at international STEP and similar, conferences, meetings and summits serve a dual purpose for us. Not only does it provide tremendous opportunities to network with a large number of industry participants but it also provides opportunity for my Ministry to explore and better understand new markets, which is a key component in our strategy to arrest the decline in our financial services sector.
It is certainly great to experience the consistency with which STEP provides a forum for the education and improvement of so many professionals in the Financial Services Sector and I want to encourage you to continue your work.
I do not have to emphasize to you the importance and value of the Financial Services Sector. It remains the second pillar of our economy. Contributing 11-15% of our Gross Domestic Product and employing 10% to 13% of our workforce, the industry boasts of some of the highest salaries in the economy. In 2013 the Oxford Economics Study put the average combined salary for banks and trust companies offshore and onshore at some $56,000. However, in the same report the average annual salary for the offshore banking sector alone was as high as $87,000.00. It is therefore obvious that the preservation of the sector is not an option.
Coupled with our marketing initiatives the ministry of Financial Services has designed several other aggressive initiatives to ensure the survival and preservation of the Industry, to capture new business, to improve products and to diversify our offerings allowing us to compete on a regional and global level.
ENSURING THE SURVIVAL AND PRESERVATION OF THE FINANCIAL SERVICES SECTOR
The Bahamas is a premier financial services centre. We have much to be proud of. The jurisdiction offers a wide range of wealth management services, a robust regulatory and legislative regime and a highly skilled work force. Our low tax regime helped to establish us as an attractive offshore jurisdiction from our infancy. What has previously set us apart and distinguished us is now the source of our vulnerability as the US Government and the OECD Countries determine that our system creates inequity and unfair competition.
We have always responded in ways which ensured compliance with our international regulatory obligations but we have also been resourceful and creative enough to protect our industry. Thus in response to the black listings relative to anti-money laundering standards and tax cooperation of the mid-2000’s, we responded by entering into a number of tax information exchange treaties to secure greater transparency within the sector.
In 2010 the United States established by legislation a new standard for international tax transparency by setting up the Foreign Account Tax Compliance Act (FATCA), an automatic exchange of tax information between foreign governments and the United States. The Bahamas signed the agreement in 2014 and as it stands today has successfully implemented the terms of the agreement by passing legislation, setting up an information portal with the Minister of Finance as the competent authority and have successfully registered the lion’s share of foreign financial institutions. The current OECD obligation for Automatic Exchange of Information (AEOI) and the Common Reporting Standard (CRS) is of course the next big regulatory obligation that The Bahamas must face.
As you are all no doubt aware The Bahamas has committed to a 2018 compliance date and a bi-lateral approach opting for agreements with countries on an individual basis as opposed to the multi-lateral approach, simultaneously becoming a party to the Multi-Lateral Convention on the Mutual Administrative Assistance in Tax Matters along with all other member states who are signatories.
Contrary to any information you may have heard the Bi-lateral approach remains the government’s policy as it relates to implementing the CRS. The Preamble to the Multi-lateral Convention on Mutual Administrative Assistance in Tax Matters is helpful though in that whatever approach is adopted the overarching principals which govern AEOI and CRS are consistent. They include the principals that the OECD member states must act together to combat tax avoidance and tax evasion internationally; that for member states to do so successfully requires co-operation and a coordinated effort by all states; and that the protection of confidentiality of information and taking account of international instruments of protection of privacy and flows of personal data is critical to the cooperation of member states in the AEOI system. Notwithstanding that The Bahamas has elected the bi-lateral approach for the automatic exchange of information, we are confident that we can successfully remain true to those overarching principals and their intended goals. Cognizant of the need to prepare for our 2018 adoption of the CRS, the Ministry of Financial Services in collaboration with the Bahamas Financial Services Board (BFSB) and several industry stakeholders recently met to chart the way forward, taking a pro active approach to implementation. It has been determined that an Implementation Task Force comprised of all major stakeholders including the Ministry of Finance as the portfolio Ministry, the MOFS, BFSB, the AG and Private Sector representatives, is best to devise an implementation plan and to assist with the drafting of the requisite legislation. Our work on this initiative is key to the survivability of the sector and this government will work assiduously to ensure success.
CAPTURING NEW BUSINESS TO DIVERSIFY OUR OFFERINGS ALLOWING US TO COMPETE ON A REGIONAL AND GLOBAL LEVEL.
I have already discussed with you the extensive promotional work undertaken by my Ministry last year to capture new business. This activity for the most part has been directed towards attracting the traditional sectors: offshore banking, private wealth management and asset management. It entailed many meetings with intermediaries in Latin America, The United States, England and Asia. However, in January 2014 on taking up my appointment with the Ministry I immediately recognised that there was an opportunity to expand, diversify and increase the Bahamas’ value among our regional competitors by moving to establish the Bahamas as an International Arbitration Hub for this hemisphere. South-South trade within emerging markets, especially those in Africa, the Americas (including the Caribbean) and the Pacific countries is expected to increase over the next decade. The expansion of trade in the Americas, in particular, will provide an invaluable opportunity for the establishment of a reputable Arbitration Seat/Centre to resolve international disputes. As a result, it is inevitable that legal issues and disputes pertaining to trade and investment will arise. These issues will need to be resolved promptly and in a manner acceptable to all parties.
We possess all of the natural attributes that make us an attractive prospect; our proximity to the United States, our accessibility by air transport to several major continents; our infrastructure by way of hotels and convention centres; our advanced technology; our burgeoning ground transportation system; our advanced health care facilities; our sophisticated court system; stable government; our trained judiciary; and our cadre of trained professionals many of whom are trained certified arbitrators make us the ideal choice. Pursuant to this we have ramped up our efforts and have achieved much over the last several months in that direction. In this regard we have taken the following measures:
1 We have engaged Two (2) consultants to provide advice and guidance for implementation- Professor Jan Paulsson and Ms. Bertha Cooper Rousseau.
2 We have produced and have begun a survey of industry professionals and firms to assist in determining our target markets and end users.
3 We have held several training workshops to enable training of arbitrators and would be arbitrators in Nassau and Freeport.
Through diplomatic channels and with the assistance of the Hon. Fred Mitchell, Minister of Foreign Affairs and Immigration, we obtained the blessing of the Permanent Court of Arbitration (PCA) for membership in that organization. It is therefore timely that The Bahamas become a State Member with the view of establishing a Caribbean Permanent Court of Arbitration Facility in The Bahamas to serve the region. This in turn will allow the PCA to offer their expertise in dispute resolution to countries in the Caribbean and the Americas in a more effective manner.
1 On 30th March- 1st April we will be hosting a workshop in conjunction with The International Centre for the Settlement of Investment Disputes (ICSID) and The International Court of Commercial Arbitration (ICCA). Both world renowned highly respected, international bodies will be sending distinguished personnel to The Bahamas to train Judges, young professionals and all interested stakeholders in the United Nations Commission on International Trade Law The (UNCITRAL Model Law) and the New York Convention. These will become the bench mark legislative framework for Arbitration legislation here in The Bahamas.
The Law Reform Commission will commence the consultative period for The Bahamas International Commercial Arbitration Bill 2016 in short order. It is intended that the present Bahamas Arbitration Act 2009 will be amended and applied for domestic arbitrations.
The recent BAHAMAR saga highlighted the disadvantage of failing to provide for arbitration and highlighted the desirability of including such clauses in contractual agreements to facilitate expeditious dispute resolution. I am proud to say that in light of my governments efforts to establish The Bahamas as a regional arbitral hub and in light of our ability to inform all heads of agreement between The GOB and Foreign Investors dispute resolution clauses allowing for arbitration to be used as a means for resolving disputes that might arise in these agreements and using the Bahamas as the “seat” were included in both the Children’s Bay and BEC contracts. This is a major victory and the Ministry of Financial Services will work diligently with the Ministry of Finance, the Office of The Prime Minister and the Bahamas Investment Authority to make this the standard in all heads of agreement signed between The Government of The Bahamas and Foreign Investors and other transactional parties.
IMPROVING OUR PRODUCTS
OUR success with innovation of products is well known locally, regionally and internationally. Our Foundations, Bahamas Executive Entity, SMART Funds and the ICON are prime examples. All of these products came about as a result of the need to remain relevant and responsive to our clients needs and work is ongoing to create new products that will help to sustain the industry. This year together with BFSB we will be intensifying our efforts to recapture additional market share of the Captive Insurance Industry. However, as we Innovate our products and introduce them to the world, we must ensure that safety mechanisms are incorporated into our legislation which negates the chances of our legislation being utilised in other jurisdictions to compete against us. This is presently the case with The Trustee Act and the nullification of the application of the Hastings Bass Rule.
Industry has also brought to the forefront another amendment to the Trustee Act to legislate the ability of a trustee to contract with itself where it acted as the trustee for one or more trusts. This is in accordance with modern day practice and has been enacted in other competitive jurisdictions like Jersey. These Amendments to The Trustee Act are under review and given the urgency and desirability of the amendments will be receiving my Ministry’s full attention going forward.
You may or may not be aware of the initiative to establish a Centre for Excellence in The Bahamas. The Government of The Bahamas through a grant from The European Union (EU) facilitated by The Caribbean Development Bank (CDB) is currently formulating a plan for the creation of a Centre for Excellence with a focus on Financial Services. This project is well underway with The Bahamas Institute of Financial Services (BIFS) providing advice. A workshop to inform and advise interested stakeholders on our progress is imminent. The Centre for Excellence will cater to not only Bahamians but other financial Services professionals within the region again increasing our profile and competitiveness in the region.
Further, the Ministry of Financial Services has partnered with BFSB and the Ministry of Education to introduce The Rosetta Stone Language program in Spanish to our Public High Schools which began in September of 2015. This program is well underway and is experiencing measured success. Recognizing that the future of financial services and indeed The Bahamas lies within our youth, educating and equipping students with a second language will help to strengthen our industry and create a competitive advantage.
The Bahamas is competing with many jurisdictions for the best international financial sector firms. Many major financial services jurisdictions have created products aimed at attracting High Net Worth Individuals (HNI) and Ultra High Net Worth Individuals (UHNI’) to become residents or citizens of their country. This is recognition of the economic impact that they can have on an economy. In Jurisdictions like the UK, Canada, Singapore, New York, Malta, and now Antigua and St. Kitts, economic citizenship products are being offered based on various criteria. This has proven to be a saviour to the economies of several of our regional competitors. Attracting High Net Worth Individuals (HNI) and Ultra High Net Worth Individuals (UHNI’) can be tied to investments, home ownership, business ownership, education, infrastructure, commodities or even corporate social responsibility. My Ministry has recently completed our research and consultation with BFSB and the private sector. There will be several significant changes and improvements to our immigration policy initiatives for the sector which are scheduled to be introduced over the course of the next few weeks. However, I must stress that these changes will not involve citizenship but residency.
EASE OF DOING BUSINESS
World Bank Group Doing Business 2015 data for The Bahamas indicates a decline in our ranking in ease of doing business year after year. Our latest ranking is pegged at 106 behind many of our Caribbean competitors. This raises serious concerns. Much work is needed. The recent launch by The Registrar General’s Department of the online company registration initiative is an attempt to simplify an unnecessarily complicated and involved process thereby improving our standing. Many glitches to the system have been reported. However, focused attention is being given to resolving these issues sooner than later.
LADIES AND GENTLEMEN
I am confident that together we will be able to respond to the challenges and maintain the soundness and stability of our financial services industry. There is still much work to be done but as the Minister of Financial Services I can assure you that I am committed to the doing the work and to the success of this industry.