Bahamas overview: Setting the standard

By Wendy Warren, chief executive officer and executive director, Bahamas Financial Services Board

When a well-regarded industry publication recognised the Bahamas as the ‘best international financial centre in the Western hemisphere’ in late 2005, it confirmed the long-held belief of many: The Bahamas is the better choice for financial services.

This recognition not only reflects the jurisdiction’s long history in providing financial services, which dates back to the 1930s. It also illustrates historic commitment to maintain and grow its presence as a provider of high quality financial services. This commitment has more recently given expression to many progressive developments in the jurisdiction, as it continues to meet the requirements of an increasingly sophisticated financial-services marketplace.

The jurisdiction’s determination to excel in financial service was evident in the strengthening of the regulatory and anti-money laundering regime that occurred in 2000. In many ways, this restructuring saw The Bahamas take a leadership role in protecting international financial systems.

Over the past 18 months, legislative initiatives designed to provide products relevant to a sophisticated international clientele have been enacted, including Bahamas Foundations and SMART funds.

Policy makers and regulators are committed to creating an environment designed to encourage the continued growth of the sector, not only through ongoing regulatory refinements and the enactment of market-sensitive legislation, but also with efficient service such as the fast-track approval process by The Securities Commission of the Bahamas. Here, investment funds that target accredited or high-net-worth investors receive approval within 72 hours of the receipt of a complete application form. Significant effort is also being made as the Registrar General Department transitions to internet-based operating systems and a 24-hour turnaround time on the establishment of international business companies.

Wealth management remains a priority for the jurisdiction with its strong private banking and estate-planning industries serving as the backbone for the sector. At the same time the Bahamas is a mature financial centre – its services to a global clientele now include full asset management, fund administration, insurance and niche services.

The Bahamas has carefully ensured that its legislative and administrative frameworks are continually refined – for example, the introduction of purpose trusts. The Bahamas also introduced segregated accounts companies (also known as protected cell companies), expanding its use to include both institutional and private clients. Further improvements include amendments to the Perpetuity and International Business Companies Acts, as the jurisdiction seeks to provide a legislative framework that is comprehensive and relevant.

The Foundations Act is a case in point. The Bahamas is the first premier Common Law jurisdiction to introduce foundations. This estate-planning tool enjoys great familiarity in civil law countries and may now be established in the Bahamas for private, charitable or commercial purposes. The Bahamian foundation responds to the needs of clients by providing, inter alia, the choice of governing law, asset protection, unlimited duration and the ability to appoint a protector.

The investment funds sector provides further evidence of a progressive legislative framework. The Investment Funds Act 2003 reflects the legislative philosophy of the government: one that is market driven while meeting international standards. The launch of the innovative SMART fund has expanded the use of licensed funds and demonstrates the jurisdiction’s preparedness to understand and respond to the needs of the market.

Market responsiveness, in fact, has become the hallmark of financial services in the Bahamas and it is interesting to note that a number of the approaches adopted here have been introduced by competing jurisdictions. The Bahamas’ model of an unrestricted fund administrator, which came in during 1995, has been introduced under different nomenclature in at least one jurisdiction in recent years. Features introduced in The Bahamas 1998 Trustee Act can now be found in the trust law in any number of international financial centres.

The same applies to the launch of Bahamas foundations. With approximately 250 banks and trust companies located in The Bahamas, many of the world’s largest and most prestigious financial institutions have branches or subsidiary operations in the jurisdiction, taking advantage of the country’s stable political and economic system, and establishing The Bahamas as a regional leader in financial services.

The country’s political and economic stability, and steady macroeconomic stance, has led Standard & Poor to assign ‘A-’ long-term and ‘A-2’ short-term Sovereign Credit ratings. The Bahamas also enjoys an ‘A-3’ Investment Grade rating, from Moody’s Investor Services, on its sovereign debt. It ranks second behind Chile in ratings of credit worthiness in The Caribbean and Latin America.

The country remains committed to a tax neutral platform in which there are no income, capital gains and inheritance taxes. There is also no stamp duty on security transactions. As there is no distinction between Bahamians and non-Bahamians, a person choosing to do business or to live in The Bahamas receives the same benefits that Bahamians do.

While the jurisdiction’s tax-neutral environment is an important consideration, equally important is maximising the efficiency of financial assets. The country’s asset managers have the experience and global connections to provide the advice and planning to meet investment objectives. Access to ‘best in class’ products through an open architecture also maximises asset class, sector and geographic portfolio mix.

Furthermore, the integrity and continuity offered by institutions located in The Bahamas provide a secure environment. All institutions maintain a physical presence in the country. There are more than 60 institutions licensed to provide fund-administration services and some 90 licensed to provide broker-dealer and/or investment-advisory services.

The financial-services industry in The Bahamas is staffed and managed by a large pool of experienced professionals. With personnel committed to the local community, continuity of service, which lies at the heart of a successful professional relationship, is more predictable and secure in The Bahamas.

Moreover, respect for personal privacy is a strongly held tenet within Bahamian society and the government has long recognised and valued the individual’s right to confidentiality in financial matters. This right is carefully balanced with the need to protect the integrity of the country’s financial systems.

With its continued focus on the requirements of a discerning international clientele, a sound regulatory environment, market-sensitive legislation and the presence of some of the most well-regarded financial institutions in the world, The Bahamas is not only a viable choice for these institutions and their clients but is truly a leader in the global financial-services marketplace.