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Features - July 2014



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Innovation in financial services
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Innovation in financial services

Bahamas must continue to develop, as investment environment evolves

The Bahamas Investor Magazine
July 13, 2014
July 13, 2014
Michele Thompson

The Bahamas’ financial services industry is poised for growth. As the world’s fourth-largest foreign banking centre, The Bahamas boasts strong roots as a sound and stable global financial marketplace. However, investors’ needs have continued to evolve and The Bahamas’ financial sector must continue to adapt to serve those needs by offering diversity in services and products.

Opportunity in adversity
From our unique vantage point in The Bahamas, we have seen several major shifts in the world’s economy in recent years that have seriously impacted global investors. These changes have created both uncertainty and opportunity in equal measure.

The first overarching trend is the recovery from the global financial crisis. It has been more than six years since the crisis sent the world economy into a tailspin. But there are signs in many regions that recovery may finally be taking place. Major stock indices in North America, Europe and Asia are up, and access to credit and liquidity have improved.

As these indicators continue to trend upward, The Bahamas’ economy is also improving. After seeing our gross domestic product (GDP) growth rate slip in the immediate aftermath of the crisis, we are now rebounding. The Bahamas’ economy showed steady growth in 2013, and all indications point to continued growth this year. This shows our readiness to participate in the increased capital flows on a global basis.

A second trend to watch is global regulations. Of particular interest to anyone doing business in The Bahamas are: the Organisation for Economic Co-operation and Development’s (OECD) Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Multilateral Convention); and the US Foreign Account Tax Compliance Act (FATCA). Both initiatives enforce action against tax evasion, while creating greater transparency in the international tax system. Due to the convergence of these initiatives, in February 2014 the OECD unveiled a new single global standard for the automatic exchange of information between tax authorities worldwide.

So, while financial services providers in The Bahamas strive to be in compliance with these rules, the regulations will also alter the way business is done. In The Bahamas, we know these changes will require us to be more competitive than ever before. Whilst they will be challenging to implement, these regulations also present opportunities for The Bahamas to create new product offerings that serve global investors.

Tapping emerging markets
The third trend is the increasing importance of emerging markets in the global economy. For example, significant wealth is being generated in Latin America, particularly in countries of focus for The Bahamas such as Brazil, Chile and Mexico. According to the 2013 World Wealth Report, Latin America has seen consistent and robust growth among high-net-worth individuals (HNWIs) in recent years. The Bahamas has worked with investors from these regions for years, and stands ready to serve their growing needs.

We should continue to work to make The Bahamas a preferred place to do business for firms and investors from these countries. We should also seek to leverage the relationships we have formed with our partners in Asia, because this region is also experiencing phenomenal growth among its high-net-worth population.

In The Bahamas, we realize that these trends make it vital that we continually evaluate what is most important to investors. HNWIs will continue to examine their residency status for tax purposes. These investors and their families would greatly benefit from The Bahamas reforming its immigration policies to make it easier for them to gain some form of residency status and invest their capital.

Other countries run successful immigration programmes that serve HNWIs. For example, Canada, Malta, Spain and Portugal offer citizenship to HNWIs who bring their wealth to and create jobs in these countries. Malta recently updated its citizenship programme to ensure that capital flows into the country. Malta requires high-net-worth immigrants who want citizenship to purchase property or invest in a business, as well as purchase government bonds. The country aims to issue 1,800 new passports and add potentially $1.4 billion to its economy.

In The Bahamas, we have to ask ourselves if we are doing all we can vis-a-vis our immigration policies to make it easier for HNWIs to invest, work and reside here. We realize that foreign investors can impact our country in very positive ways, so we must continue to meet their ever-changing needs.

If The Bahamas can provide these types of opportunities to HNWIs, we should also be able to offer services and products to assist them with their family businesses, family offices and other long-term wealth management challenges. The Bahamas has offered unique wealth management products and services for years. However, regulatory changes, coupled with global tax reform initiatives, are driving the need for us to revisit our current range of products and services.

Bahamas at the forefront
To make certain that The Bahamas remains at the forefront of global finance and wealth management, we also need to continue to invest in the nation’s infrastructure, education and training. The government should continue the focus on fast-tracking our country’s e-commerce initiatives, because the world is becoming more digital by the day. The Bahamas should also continue to improve its services and infrastructure to be able to engage with investors anywhere around the globe on a real-time basis.

We also need to continue to spend time and money on our local talent and professional resources to be responsive to investors’ needs. We could be doing more to educate our people about the financial services industry and the sectors that it supports. The Bahamas Institute of Financial Services (see pg 24) is a great resource for students interested in this sector. The government and private sector should continue working together to nurture the environment for learning. For example, teaching Bahamians foreign languages spoken in Latin America and Asia will help us connect with investors from those regions.

FS evolution
The financial services industry in The Bahamas must also evolve, as other important stakeholders, such as regulators, evolve. Over the next five years, as the world continues to recover from the global financial crisis, The Bahamas will take on board new financial regulations and rules. Our financial services industry needs to be compliant with these, and also make it easy for high-net-worth investors to abide by them.

When we think about innovation in financial services, we should ask ourselves: “What do we do well; what could we be doing better?; and what do we have that we are not using to its full potential?” By investing in the right immigration programmes, the most innovative financial products and structures and enhancing the skill sets of our best local talent, The Bahamas can address these three questions around innovating our financial services industry and continue to attract investors, while successfully serving their complex needs.

A safe, sound and sovereign financial centre for decades, The Bahamas is known the world over for its wide range of financial services. However, as they say, past performance is not a guarantee of future results. The Bahamas needs to plan strategically and act decisively to continue to meet the changing needs of global investors.

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