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Tech revolution

Tech revolution

The Bahamas readies to embrace a digital future in financial services

The Bahamas Investor Magazine
February 16, 2019
February 16, 2019
Kevin Cambridge and Carlton Cartwright

The Bahamas stands on a precipice of technological change and must choose whether to embrace it or whether to wax philosophical about its past glory as it drifts into irrelevance. The fourth industrial revolution is upon us and how The Bahamas reacts to it will shape the jurisdiction going forward.

No industry will remain unaffected, but for accounting, technology is particularly impactful. The evolution of technology has affected the industry to the extent that new entrants to the field are now challenged to match their accounting skills with technology. It has revolutionized the way business is conducted internationally and locally. Thinking that you can operate in a vacuum while the rest of the world embraces technology is not only an ideal of the past but is a proven recipe for failure in the future.

It is a reality that Bahamians need to embrace, and at times is proving challenging. Witness for example the furore over the efforts of Bahamian banks to move towards an e-banking platform. Whereas in many other developed countries, everything from transferring money with nothing more than the recipient’s e-mail address to depositing checks by taking a photo on an app, are commonplace. If, for example, six-figure real estate transactions can be closed thousands of miles away with electronic signatures, why should routine transactions at Bahamian banks and government entities not be executed with similar efficiency?

Tech transformation
Globally, we have entered into a fourth industrial revolution, one built upon the idea of harnessing technology to transform society across a myriad of industries. It took humanity millions of years to develop the computing power necessary to put a man on the moon, yet there is more computing power in a single smartphone than NASA possessed when Neil Armstrong took his first steps on the moon.

This is the challenge The Bahamas must prepare for in order to participate in the global economy. Many investors coming to The Bahamas will expect, if not demand, the same digital services as those that exist outside of The Bahamas. The Bahamas must create a framework that allows those who choose to do business in the country to effectively navigate technological change.

There are certain economies of scale that are gained almost instantly with the introduction, and evolution, of technology. The digital future is not just the result of local demand as The Bahamas continues to perform on a world stage in any myriad of industries. There is an increased focus from International Donor Agencies in funding more strategic technology-based projects, and, coupled with increased education, these will continue to come to prominence.

Looking at this from a more macro perspective, digital advances will continue to facilitate a number of government and public sector organizations to focus on redesigning and leveraging technology to deliver goods and services in the face of an ever-changing landscape requiring new or enhanced business models.

Recently, PwC Bahamas collaborated with the Office of the Attorney General to host a two-day forensics training workshop for public bodies. The workshop was facilitated by local, regional and global leaders and focused on evolving technology in the forensics arena. Regulators representing agencies such as the Royal Bahamas Police Force, the Securities Commission, The Central Bank of The Bahamas, the Ministry of Finance and the Gaming Board, among others, were able to learn about new digital technologies, strategies in data analytics and more. There was a common theme with most of the institutions requesting more information relative to the impact of technology and how it could be leveraged to improve the execution of their duties given an evolving digital age.

e-government services
An obvious advantage to a digital future will be the facilitation of more e-enabled government services. Locally, and in the region, governments will continue to evaluate and focus on e-government as an example of creating a vision facilitated by digital transformation. This includes leveraging big data and analytics to support improved tax collection and the targeting of potential tax leakage. Benefits can also arise from leveraging existing data in the hospitality sector and combining with open source data (such as social media) through advanced analytics to allow predictive capabilities to support targeted marketing and hospitality spend.

There is now an opportunity to build true e-capabilities on a cross-government basis, while leveraging potential connectivity through integrated transport systems, security systems and national identification systems. Building mechanisms for greater citizen engagement to provide real-time sentiment analysis around key government initiatives, projects and predictive capabilities for the design of future projects is also a possible reality.

The rise of cryptocurrencies
With the creation of bitcoin and the first blockchain, Satoshi Nakamoto created a paradigm shift globally.

“The root problem with conventional currency is all the trust that’s required to make it work,” he said. “The Central Bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”

In a global society in which the public trust has been eroded due to the financial crisis of 2008, Nakamoto developed a technology that redistributed trust from a centralized institutional middle man (eg bank depository) to advanced cryptography and the blockchain. And we see the effects of this paradigm shift in a lot of the technology coming to the fore today. People increasingly want the freedom to choose their own destiny without the authorities looking over their shoulder. Technology allows them that freedom, with “Big Brother” being an impartial artificial intelligence rather than a biased or corrupt individual.

Regulation for the new era
The Bahamas is uniquely positioned as a fast follower in developing a framework for crypto assets that leverages the knowledge gained from other jurisdictions, while avoiding some of the reputational risks with being first to market. Legislation is on the horizon and it is expected to include some of the best practices from jurisdictions across the globe. The demand is there from investors across the globe looking to set up crypto funds, exchanges, initial coin offerings, etc. One of the questions that always comes up is whether or not the legislation allowing them to navigate the regulatory framework efficiently and effectively exists.

The expectation is that the regulatory framework and industry participants will focus on the following:

  1. Appropriate anti-money laundering and Know Your Customer procedures ensuring the ability of The Bahamas and industry participants to fulfil obligations under common reporting standards, FATCA and other transparency regimes.
  2. Defining what constitutes a digital currency, a utility token, an asset backed token and a security token, and detailing the regulatory, legal and accounting requirements that flow from such a determination.
  3. Developing standards around licensing, conduct, disclosures, privacy, investor protection, and cyber security for crypto exchanges, crypto funds, initial coin offerings and the various service providers within the crypto ecosystem.
  4. Articulating an approach to valuation and custody that addresses concerns around liquidity and volatility of crypto assets.
  5. An approach to technology disruptors’ entry to the marketplace such as a technology firm (eg Google) establishing crypto assets rather than a traditional financial services firm.

Strategic thinking
Longer term, The Bahamas will have to think strategically about how crypto assets will disrupt not only traditional financial services firms but the regulatory environment itself. How, for example, does The Bahamas maintain an exchange control regime when local and international investors can bypass traditional Bahamian dollar to US dollar conversion by converting these fiat currencies into digital currencies?

More broadly, there is an element of change management that seems to lag in a number of the technology implementation projects. If key specialists required to implement and pass on the technology are not engaged as robustly and aggressively as the technology implementation and focus on the front end, there may be a gap in the “plan”. This may require not only revisiting and implementing an effective communications plan at the back end, but in some cases may contribute to significant delays and further unanticipated financial outlays.

Some will approach this uncertain future with dread and others will see it as an opportunity.

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