SPECIAL REPORT: THE BAHAMAS
CONTENTS
Intro • Features • Videos
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By International Invesment's Gary Robinson
BFSB CEO Tanya McCartney introduces this special report
This video hub features all of the videos included in this ezine
FOREWORD
CEO MESSAGE
VIDEOS
Resilience marks out The Bahamas
FEATURE
VIDEO
Minister Ellsworth Johnson says The Bahamas is "open for business"
MBH's Kevin Moree speaks on economic substance
GSO's Linda Beidler-D’Aguilar on the importance of the Family Office
Leno's Brian Jones on fintech and the importance of digitisation
H&J's Sharmon Ingraham discusses regulation
Svetlana Stoilova, SPG Patners on investment strategy
Genesis MD Antoine Bastain on how the funds industry has evolved
Ricardo Evangelista on The Bahamas as a well-regulated trading hub
Lightening does not strike twice but as Gary Robinson, Commercial Director at International Investment notes, dealing with two major crisis in a row seems to have brought out the best in The Bahamas financial services companies…
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Lightening does not strike twice but as Gary Robinson, Commercial Director at International Investment notes, dealing with two major crises in a row seems to have brought out the best in The Bahamas financial services companies…
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FEATURES
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The region’s attitude to diversity is reassuringly refreshing
esilience is a key word that often crops up in international financial services. It is important to have that quality in this changeable financial world, and never more necessary than in 2020 amid this ongoing covid-19 pandemic with its lockdown and post-lockdown aftermath For The Bahamas this is the second year of dealing with an unexpected crisis following on from 2019’s Hurricane Dorian disaster. In many ways dealing with that event gave The Bahamas an edge on many of its international financial centre counterparts as it was faced with boosting its technologies following on from Hurricane Dorian in 2019. As a result, when the covid-19 lockdown hit the islands, they were already primed with technology in place to deal with increased remote working and the need to get the best out of all of the latest technologies. As The Bahamas Financial Services Board’s CEO and Executive Board member Tanya McCartney says in her excellent feature, The Bahamas financial services sector has been “impressively resilient and progressive” in the face of such events as Hurricane Dorian and the covid-19 global pandemic. Progressive. That is another key-word. And one that is perhaps apt when looking at The Bahamas. Indeed, the region’s attitude to diversity is reassuringly refreshing and it is heartening to see so many woman in important roles in The Bahamas – a number of which feature in the articles and videos within this special report. This is the third annual special report on The Bahamas that International Investment has been involved in and we are proud to bring you this ezine. We hope you enjoy reading and watching the features and videos contained within. Gary Robinson is Commercial Director and Head of Video at International Investment
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Foreword
esilience is a key word that often crops up in international financial services. It is important to have that quality in this
changeable financial world, and never more necessary than in 2020 amid this ongoing covid-19 pandemic with its lockdown and post-lockdown aftermath For The Bahamas this is the second year of dealing with an unexpected crisis following on from 2019’s Hurricane Dorian disaster. In many ways dealing with that event gave The Bahamas an edge on many of its international financial centre counterparts as it was faced with boosting its technologies following on from Hurricane Dorian in 2019. As a result, when the covid-19 lockdown hit the islands, they were already primed with technology in place to deal with increased remote working and the need to get the best out of all of the latest technologies. As The Bahamas Financial Services Board’s CEO and Executive Board member Tanya McCartney says in her excellent feature, The Bahamas financial services sector has been “impressively resilient and progressive” in the face of such events as Hurricane Dorian and the covid-19 global pandemic. Progressive. That is another key-word. And one that is perhaps apt when looking at The Bahamas. Indeed, the region’s attitude to diversity is reassuringly refreshing and it is heartening to see so many woman in important roles in The Bahamas – a number of which feature in the articles and videos within this special report. This is the third annual special report on The Bahamas that International Investment has been involved in and we are proud to bring you this ezine. We hope you enjoy reading and watching the features and videos contained within. Gary Robinson is Commercial Director and Head of Video at International Investment
Tanya McCartney, CEO and Executive director of The Bahamas Financial Services Board introduces this special report in a video message
The Bahamas has been impressively resilient and progressive
CEO message
CEO Message
Resilience marks The Bahamas' financial services industry
The Bahamas has evolved to become the premier international banking and trust business centre in the Caribbean and Latin American region
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None of these challenges have impeded the country‘s financial services industry from conducting business and delivering bespoke solutions to meet changing diverse client needs. Robust business continuity plans that are in place with all financial institutions have allowed business to continue doing business during Hurricane Dorian last fall and now as the world deals with Covid-19. The far-sightedness of business continuity measures have clearly been in play in cushioning the implications of these events and reinforces why the country is seen by many as an ideal location for financial institutions and the services they provide to their international client base. This adaptability has been especially evident in The Bahamas’ response to international initiatives, which has ensured adherence with the highest standards of compliance with every internationally agreed standard of conduct.
The Bahamas has evolved over the years from being an ‘offshore’ centre, with all that the word connotes, to the premier international banking and trust business centre in the Caribbean and Latin American region. The jurisdiction has been and remains demonstrably and effectively unwelcoming to those seeking to engage in questionable and illegal activities. Further, The Bahamas is a cooperative and transparent partner in tax and related matters. Acknowledgement of this commitment was the news earlier this year of The European Union’s Economic and Financial Affairs Council’s complete removal of The Bahamas from its List of Non-Cooperative Jurisdictions for Tax Purposes. Against this background The Bahamas joined more than 108 countries in the OECD’s Global Forum in formally acceding to The Multilateral Convention on the Mutual Administrative Assistance in Tax Matters (The Multilateral Convention). The legislative framework for implementation of The Common Reporting Standard was also put in place by The Bahamas in 2016.
A shared commitment
In addition to CRS implementation, signing MCAA and entering BEPS, the integrity of the jurisdiction is evidenced by the following: (a) A strong anti-money laundering, counter financing of terrorism Regime; and (b) US Foreign Accounts Tax Compliance Act implemented (FATCA Compliance). The Financial Action Task Force (FATF) has acknowledged that The Bahamas has remediated the issues identified in its assessment of its anti-money laundering framework and had agreed to an onsite inspection as a part of the formal process of exiting the FATF ‘Grey List’. This onsite visit was scheduled for April 2020 but had to be postponed as a result of the COVID19 pandemic. The Bahamas remains buoyed by that announcement, notwithstanding later conflicting news of the EU’s intention to include The Bahamas on the list of high-risk third countries, which would take effect in October 2020. The Bahamas is engaged with EU officials at the highest diplomatic and political level to demonstrate the strength of The Bahamas’ AML/CTF regime. The Bahamas maintains that it is attaining the highest standards in the fight against money laundering, terrorist financing and other identified financial crimes risks.
Financial services are the second most important industry in The Bahamas after tourism. As such, successive governments have recognised the importance of the industry to the country’s continual economic and social development. The financial sector’s viability is therefore a priority for both public and private sectors alike. This level of importance is indicated by the responsiveness of the legislature and regulators to the needs and demands of the market, as well as the swiftness with which these processes can take place. It is also demonstrated by the balance that regulators strike between ensuring that the financial services industry keeps its integrity, while still encouraging lively competition. What’s more, The Bahamas has a government ministry dedicated solely to financial services, and a shared commitment exists between the public and private sectors to help promote and develop the industry
Transparent environment
With a history of financial services dating back to the 1930s, The Bahamas ranks among the world’s most significant international financial centres (IFCs). The jurisdiction is one of the world’s leading international banking centres, alongside New York City and Miami in the United States, London, Switzerland, Toronto, Dubai, Hong Kong and Singapore; and it is the preeminent banking jurisdiction of the Caribbean region. The centre comprises several sectors, including banking, private banking and trust services, mutual funds, capital markets, investment advisory services, accounting and legal services, insurance and corporate and shipping registry. While providing the largest offering of international banks – US, Europe, Asia and Latin America – in the region, including South and Central America. Wealth management accounts for a large part of the jurisdiction's financial sector. For many high-net-worth individuals, banking and wealth management outside one’s home country are simply good business and a wise avenue for investment. There are several reasons for this. First, multi-national and multi-generation families and family businesses find that they can preserve their wealth for the long term and transmit it to younger generations with ease when they site some of their assets in a jurisdiction with trust laws. Their home jurisdiction might be subject to civil unrest or have a history of political or financial instability, while its government might want to expropriate their wealth and subject them to capital controls. It is therefore important for HNWIs to offset these risks by keeping at least some of their assets in a jurisdiction that does not suffer from these problems. Further, international banking and wealth management centres often possess financial products and services that are superior to those found in their home countries. The Bahamas requires businesses and other entities to disclose information to the government about the ways in which they generate their income and the amount of tax they pay. The jurisdiction can also be said to be tax transparent because it follows the doctrine that nations ought to exchange information with one another about people's and entities' tax affairs – on request in some cases and automatically in others. By Tanya McCartney
Tanya McCartney, CEO and Executive director of The Bahamas Financial Services Board, discusses how resilence shown in the face of natural disasters and global pandemics is equally effecive in the changing world of international financial services...
Feature
he Bahamas is the leading international financial centre in the Latin America and Caribbean region, respected for its expertise in fiduciary services. The financial services sector has been impressively resilient and progressive in the face of events such as Hurricane Dorian, the current Covid-19 pandemic, international initiatives and in the midst of the continued and sometimes challenging evolution of the global industry.
sector has been impressively resilient and progressive in the face of events such as Hurricane Dorian, the current Covid-19 pandemic, international initiatives and in the midst of the continued and sometimes challenging evolution of the global industry.
In this video Minister Ellsworth Johnson highlights how The Bahamas has coped and, indeed, even thrived amid recent dramatic events...
Despite experiencing two international crises, we are open for business
Understanding the impact of the Commercial Entities (Substance Requirements) Act
It is not controversial that entities should be engaged in real economic activity in the jurisdiction in which they are deemed to be resident
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What entities are subject to CESRA?
or some time now, there has been a steady shift in the financial services industry toward the implementation of global standards and international coordination. The rationale for this is said to be a desire to prevent money laundering, terrorist financing and tax evasion/avoidance. Specifically, with respect to tax evasion/avoidance, there is growing international concern that some businesses are artificially transferring profits from one jurisdiction to another with the sole purpose of minimising their tax liability. The European Union Code of Conduct Group (the COCG) and the Organization of Economic Co-operation and Development (the OECD) are leading the charge to combat this concern and have created frameworks which are widely accepted as the global standard. Economic substance requirements feature in both frameworks, namely Criterion 2.2 in the COCG framework and Action 5 of the OECD Base Erosion and Profit Shifting Initiative. It is not controversial that entities should be engaged in real economic activity in the jurisdiction in which they are deemed to be resident for tax purposes. At the end of 2018 the Bahamian Government passed the Commercial Entities (Substance Requirements) Act (CESRA) in an effort to ensure compliance with international best practices while maintaining The Bahamas’ leading role in the competitive market of international financial centers. The purpose of CESRA is essentially to ensure that certain Bahamian entities are either i) engaged in real economic activity in The Bahamas or ii) tax resident and compliant in some other jurisdiction.
Presently, the greatest challenge encountered by advisors and clients alike is confirming what is sufficient to fulfill the relevant substance requirements. Specifically, the ‘adequacy’ test (which is used to determine whether the entity has adequate levels assets, personnel, etc. in the jurisdiction) is unapologetically qualitative rather than quantitative, and determining where central management and control is often a matter that only senior personnel in the entity are able to do. Such a challenge is not peculiar to The Bahamas, as evidenced by the voluminous guidance provided by various governments and international organisations regarding similar legislation in other jurisdictions as well as the significant breadth of jurisprudence on issues such as central management and control which provide insight into how jurists have interpreted similar legislative provisions elsewhere in the world. This challenge, however, also creates an opportunity as The Bahamas can leverage the experience of other jurisdictions to clarify what the best approach is.
This is a welcome development for some who may have experienced difficulty in the past satisfying the relevant authorities in other jurisdictions that an entity was tax resident in The Bahamas. For others it has necessitated fundamental changes to corporate governance and operational practices. Further, business, tax and estate planning structures often include corporate vehicles in various jurisdictions for a plethora of legitimate reasons. Beneficial owners of Bahamian companies, individuals involved in a Bahamian partnership and advisors who have clients that utilise Bahamian companies or partnerships must now be aware of the possibility that those corporate vehicles may be subject to economic substance legislation and consequently required to fulfill certain substance requirements. It is important to understand i) what entities are subject to the Bahamian substance requirements legislation, ii) when entities are required to have substantial economic presence in The Bahamas, iii) what qualifies as substantial economic presence and iv) reporting requirements.
When is substantial economic presence required?
CESRA came into force on 31 December 2018 and applies to Bahamian entities incorporated, registered or continued under the Companies Act (including foreign entities which have been registered under that Act), International Business Companies Act, Partnership Act, Partnership Limited Liability Act and Exempted Partnership Act. Other Bahamian corporate vehicles, including trusts and foundations, are not subject to CESRA and therefore are not required to have substantial economic presence in The Bahamas or submit a CESRA report.
An entity that is subject to CESRA is required to have substantial economic presence in The Bahamas if it, or any of its subsidiaries, is engaged in any of the following business activities: banking, insurance, fund management, financing and leasing, headquarters, distribution and service centres, shipping or the commercial use of intellectual property. However, there are two exceptions: 1) If the entity is wholly owned either directly or indirectly, by one or more persons who are either a) ordinarily resident and domiciled in The Bahamas or b) an annual or permanent resident of The Bahamas and physically there for at least three months cumulatively each calendar year and the entity conducts its core income generating activities in The Bahamas; or 2) If the entity is centrally managed and controlled outside The Bahamas and is tax resident in a jurisdiction other than The Bahamas. If either of these exceptions are satisfied, the relevant entity is not required to have substantial economic presence in The Bahamas. The first exception has enabled beneficial owners of entities subject to CESRA who reside in The Bahamas to avoid the sometimes arduous analysis associated with determining whether or not substance requirements have been satisfied. Holding companies are subject to reduced substance requirements.
What qualifies as substantial economic presence?
What qualifies as substantial economic presence will vary on a case-by-case basis. Generally, entities that are subject to the substance requirements and are not tax resident in a jurisdiction other than The Bahamas must have adequate assets, qualified personnel, physical office space and control in The Bahamas. With respect to having adequate control, while there is currently no Bahamian jurisprudence on this topic it is anticipated that the seminal UK cases, which are persuasive but not binding in The Bahamas, will be instructive.
What are the reporting requirements?
All entities that are subject to CESRA are required to report within nine months of the entity’s financial year end (a three-month extension has been granted for 2019 CESRA reporting in light of the COVID-19 pandemic). However, the level of detail required in the report depends on what category the entity falls under pursuant to the legislation. Regulated and included entities have to report the greatest amount of information, including a description of the nature of business the entity is engaged in; the names, addresses and contact information for all of the directors; the names, addresses, contact information and jurisdiction of tax residence for all shareholders; amount and type of gross income; amount and type of expenses and assets; number of full-time employees; summary of the core income generating activities and a summary of the management and control activities. Holdings entities are required to provide the least amount of information. Consistent with the Bahamian Government’s public commitment to increase the ease of doing business and leverage technology, CESRA reporting uses an electronic smart form via an online portal, which is also used for business licence and value added tax applications, renewals and filings. It is important to note that every reporting entity is required to obtain either a tax identification number, if it will be a value added tax registrant, or an entity identification number prior to submitting a CESRA report.
What are the greatest challenges and opportunities associated with CESRA?
Kevin A.C. Moree, McKinney Bancroft & Hughes, speaks on how the Commercial Entities (Substance Requirements) Act (CESRA) ensures compliance with international best practice, while at the same time creates opportunities for future growth...
There is presently another significant challenge resulting from the travel restrictions associated with the COVID-19 pandemic. Usually, two of the most significant factors in determining the location of the central management and control of an entity are i) where the board meetings take place and ii) what is decided at those meetings. As directors are unable to travel, board meetings that would usually have taken place in a certain jurisdiction are now being held virtually. Further, major decisions regarding business strategy, redundancy, etc, which would usually be made at a board meeting in a certain jurisdiction have had to be made urgently by an individual located in a different jurisdiction. Some jurisdictions have provided guidance as to how the relevant competent authority will adjust substance requirements in light of the covid-19 pandemic but no such guidance has been provided in The Bahamas to date. Finally, it would seem that on the whole CESRA presents a great opportunity for The Bahamas. Having senior personnel (directors, management), or even the beneficial owner, of an entity living in the jurisdiction in which the entity was created is often very helpful with confirming that any substance requirements have been satisfied. If such a strategy is undertaken then quality of life is a major consideration and The Bahamas seems to have a strong competitive advantage as it has a stable government and economy, is easily accessible from anywhere in the world and has an extremely attractive climate and natural environment. By Kevin Moree, MBH
international best practice, while at the same time creates opportunities for future growth...
The Bahamas: The ideal location for a family office
As persons seek safe harbour in a post Covid-19 environment, The Bahamas should be top of mind
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What is a family office?
s families seek greater control over their financial affairs, the establishment of family offices have risen to play a vital part in the cohesive and efficient management of family business interests, along with the domestic and personal affairs of their members.
This article examines the ways in which family offices can take a holistic approach to "succession planning" – the handing over of wealth from one generation to the next – while creating durable governing structures at the same time.
Multigenerational relations
A family office is a vehicle that can provide the family or families that it represents with a broad range of services, domestic administrative matters (e.g. travel arrangements, staffing and housekeeping), sophisticated support for long-range business, tax and estate planning. The supervision of trusts and the management of investments that may be outside the family’s main operating businesses are two of the main functions of family offices operating in The Bahamas.
When a family uses a single comprehensive structure, it can spot evolving opportunities and evaluate its overarching objectives with ease. When such a structure controls that family’s various interests and keeps an eye on its obligations, its affairs are likely to be stable over a long period of time. A family office also helps the family evaluate the goods and services that firms offer it and can also keep information about relatives' lives confidential because it consolidates advisory services, wealth management, income distribution and other services for them inside a structure that they themselves own. This is the antithesis of a piecemeal review of disparate elements in isolation from one another.
When such a structure controls that family’s various interests and keeps an eye on its obligations, its affairs are likely to be stable over a long period of time. A family office also helps the family evaluate the goods and services that firms offer it and can also keep information about relatives' lives confidential because it consolidates advisory services, wealth management, income distribution and other services for them inside a structure that they themselves own. This is the antithesis of a piecemeal review of disparate elements in isolation from one another. Multigenerational Relations A family office facilitates "generational planning," the means by which one rich generation plans the lives of a later one, and can avail itself of a broad variety of tools that help it do so. Wills are, of course, a common means of such planning, but are rarely good at helping people manage their dynastic interests from beyond the grave. Trusts (stalwarts of common law practice) and foundations (structures originally established under civil law codes), on the other hand, have been developed with the explicit aim of helping people to plan the lives of others for decades and perhaps even centuries ahead. The overseeing and management of family trusts or foundations can be placed in the hands of third parties who report to a family office. Alternatively, the family office may itself establish a Bahamian private trust company (PTC) for the express purpose of acting as the trustee of this-or-that trust or group of trusts; equally, it can act as the founder or supervisory party to a foundation. A PTC commonly takes the form of a limited liability company and its board of directors can include members of the family in question as well as trusted advisors and independent third parties. Consequently, the family may retain a measure of control over the strategic management of the assets without prejudicing the validity of the underlying trust or foundation. If the family establishes the structure with an unlimited life-span, subsequent generations can help to govern it. Family Governance Much of this planning depends on the amount of time that the members of this-or-that family wish to devote to their tasks, their willingness to deal with internal and external advisors and their attitudes towards the disclosure of information about themselves to people outside the office. A family that wants to derive the greatest benefits from its office ought to take corporate governance very seriously. The family in question – and its advisors – ought to ensure that the people in its office have the right skills and expertise to do their jobs, even if those people come from its own ranks. Governance is not solely the province of directors and officers; people perform important functions at lower levels as well. The proper management of the family office's books and records is of the utmost importance, not least because adequate accounting records and the comprehensive compilation of information (internal and external) is necessary if the office is to meet its multitudinous reporting requirements. In order to ensure compliance with local laws and regulations, more and more family offices are paying increasing attention to the hiring of qualified staff members and the use of third-party consultants with the right reporting skills who can review compliance and risk management procedures, the better to follow the increasingly sophisticated obligations that regulators are imposing on them.
Linda Beidler-D’Aguilar, a partner at Glinton Sweeting O’Brien, counsel and attorneys-at-law, explains why The Bahamas is the perfect location for families for both business and pleasure and how a family office can thrive and develop amind the post Covid-19 backdrop...
A family office facilitates "generational planning," the means by which one rich generation plans the lives of a later one, and can avail itself of a broad variety of tools that help it do so. Wills are, of course, a common means of such planning, but are rarely good at helping people manage their dynastic interests from beyond the grave. Trusts (stalwarts of common law practice) and foundations (structures originally established under civil law codes), on the other hand, have been developed with the explicit aim of helping people to plan the lives of others for decades and perhaps even centuries ahead. The overseeing and management of family trusts or foundations can be placed in the hands of third parties who report to a family office. Alternatively, the family office may itself establish a Bahamian private trust company (PTC) for the express purpose of acting as the trustee of this-or-that trust or group of trusts; equally, it can act as the founder or supervisory party to a foundation. A PTC commonly takes the form of a limited liability company and its board of directors can include members of the family in question as well as trusted advisors and independent third parties. Consequently, the family may retain a measure of control over the strategic management of the assets without prejudicing the validity of the underlying trust or foundation. If the family establishes the structure with an unlimited life-span, subsequent generations can help to govern it.
Reasons to establish a family office
Succession planning
An increasing number of family offices are being established by patriarchs and matriarchs who have, through their own efforts, established the businesses and interests that those offices are destined to oversee. Their knowledge and expertise cannot, however, be the sole basis for current and future planning if those family offices are to prosper over long periods. They might require the following. • The preparation of a family constitution or charter that may encompass such concepts as the family’s overarching aspirations and goals, the things that it values, the missions of its businesses, the jobs and responsibilities of family members and various third parties (persons and entities) that work for it, and policies, procedures and processes that might resolve disputes that arise in crucial areas (business or otherwise). • A regular evaluation of the executives (who may or may not be family members) who work at the office, along with a continual assessment of the jobs and responsibilities that people at the office shoulder. • The development and augmentation of knowledge and skills through formal training, plus an encouragement of the flow of information between people in the office and between family members and their internal and external advisors. • Plans of action to help the family live up to its social responsibilities and further its philanthropic interests.
Family governance
Much of this planning depends on the amount of time that the members of this-or-that family wish to devote to their tasks, their willingness to deal with internal and external advisors and their attitudes towards the disclosure of information about themselves to people outside the office. A family that wants to derive the greatest benefits from its office ought to take corporate governance very seriously. The family in question – and its advisors – ought to ensure that the people in its office have the right skills and expertise to do their jobs, even if those people come from its own ranks. Governance is not solely the province of directors and officers; people perform important functions at lower levels as well. The proper management of the family office's books and records is of the utmost importance, not least because adequate accounting records and the comprehensive compilation of information (internal and external) is necessary if the office is to meet its multitudinous reporting requirements. In order to ensure compliance with local laws and regulations, more and more family offices are paying increasing attention to the hiring of qualified staff members and the use of third-party consultants with the right reporting skills who can review compliance and risk management procedures, the better to follow the increasingly sophisticated obligations that regulators are imposing on them. By Linda Beidler-D’Aguilar
Despite differences as to the type of governance that family offices and their associated structures should have, there is no question that present political and regulatory conditions suggest that substance prevails over form. Anyone who wants to establish a family office must consider "permanent establishment" regulations (which govern fixed places of business that usually generate direct-tax liabilities in the jurisdictions where they are situated) and "controlled foreign company" (CFC) rules. He or she must also contend with rules that relate to tax, residency and immigration while overseeing and managing things competently. The Bahamas’ legislative and regulatory regime gives such people the opportunity to create effective and efficient structures for family offices that comply with financial regulations. Service providers (including financial institutions, lawyers and accountants), skilled professionals and staff are readily available. The Bahamas' proximity and direct flights to major cities such as Miami, New York, Toronto and London, as well as the opportunity for families and their trusted advisors to take up residence and purchase property, are highly advantageous for long-term strategic planning. As persons seek safe harbour in a post Covid-19 environment, The Bahamas should be top of mind.
Fintech Innovation Post Covid-19: The digital age and beyond
The Bahamas has demonstrated its ability to innovate in the investment funds and fiduciary services space
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Digital assets
n the world of travel, there was pre-9/11 and post-9/11. One day we strolled through airports as casually as taking a Sunday walk on the beach. And before we knew it, we were taking off our belts, sweaters, shoes and being subjected to pat-downs and three-ounce packages of toothpaste. Pilots were separated from passengers and we were separated from our water bottles. To our surprise, or our credit, we got used to the new norm. We accepted it because, deep down, we knew there had been a fundamental change in the way the world operated and it was never going to go back to the way it worked before. Today, we tiptoe on the cusp of another seismic shift. In the world of just about everything, there will be pre-Covid-19 and post Covid-19, modes of operating that will more quickly separate the past from the future than any peacetime event that has come before it. At this moment we know what the past looked like. We can also surmise as to what the future will be as it relates to our everyday lives or in the always changing world of financial services and international asset management, but here are a few thoughts. Even in the face of unprecedented change The Bahamas remains an ideal location, ideally suited to meet client needs in the post-Covid 19 era.
Innovation will rule. As an international financial centre, The Bahamas has demonstrated its ability to innovate in the investment funds and fiduciary services space. Technological efficiency and effectiveness will drive further developments in the world of high finance. Facial recognition will not only allow the most innovative cruise line to fulfill its promise of 10 minutes from car to bar; it will allow us to slide seamlessly through security lines at airports, check into or out of hotels, and prove we are who we say we are whether charging the purchase of a new vehicle or collecting our retirement benefits, ideally while maintaining our privacy and data security.
Data analytics
The use of digital assets will explode for everything from major purchases and investments to basic goods online. Five years ago, when I first began talking about digital assets, it had an almost futuristic ring to it. Daring souls showed up at those early conferences, driven as much by curiosity as belief and countries began to consider how to regulate this new sector. To this end, The Digital Assets and Registered Exchanges Bill has been drafted and we expect that it will be passed into Bahamian law before the end of 2020. Gradually, the increasing emergence of types of blockchain and cryptocurrency fascinated the forward-thinking and struck fear in those who continued to feel that if they couldn’t see it, touch it, easily pay for it and get something tangible in return for the paper handed over, it just wasn’t real. Yet a number of developers took risks and made sales, accepting digital currencies, such as Bitcoin, to develop futuristic ideas and businesses. Secure peer-to-peer value transfers to and from digital wallets were made possible. While more use cases are still being developed as adoption of digital currencies continues to grow, the primary use case at the moment is as a speculative investment. For those who play the markets, making money trading cryptocurrencies is not as easy as it might sound. Many were attracted to the possibility of quick gains and although a lucky few do generate positive returns, many end up losing money. Nonetheless, anyone who has conducted a digital currency transaction can confirm first hand that the very nature of money is changing.
But the true widespread adoption of digital wallets came thanks to an unintended consequence of Covid-19 that forced shopkeepers to turn OPEN signs to CLOSED in an effort to contain the spread of the disease, causing more people to rely on the online life. Many learned the ease of ordering what they wanted online or via a mobile app, sitting back awaiting home delivery. Fast forward to the immediate future, storeowners and businesspeople who want to attract foot traffic will need to find ways to appeal to a public that will choose between fighting to find parking, traipsing through aisles hoping to find the exact product in the colour and size they want while trying to maintain social distancing, or stretching out, watching a made-for Amazon Prime movie and waiting for what they want to be delivered to them. Covid-19 has not slayed bricks and mortar, but it has awakened the sleeping giant of online competition and digital payment in places like The Bahamas, which is in the infancy stages of rolling out digital currencies and regulating virtual currencies and assets. The Bahamian Sand Dollar was launched just in time to mitigate against the adverse impact of the Covid-19 pandemic in a country made up of many islands.
As we spend more of our money and more of our lives online whether for purchases, entertainment or information, data analytics will become increasingly important. Sellers need to understand buyers. Who is watching what? For how long? What colours and sounds appeal to six-year-olds, who influence parents’ cereal purchasing behaviour? The need for data analytics combined with design thinking is becoming urgent and The Bahamas is perfectly suited to become the capital of hemispheric databases. Why? Because The Bahamas has the strongest bandwidth in the region. The country is right on the edge with the fastest data connections through fiber optics cables. Hosting companies are running their operations and data collection from a data center right here in Nassau. Ironically, while we are at the forefront of the new invisible reality, we are still stuck as a society in the age of paper. We conduct so many transactions manually, including title searches. Legal practitioners pour through old deeds and thick registers that could double as weights, search stamped pages of time-worn record books that need to be digitalised and then promptly placed in a historical museum as fascinating artifacts.
As people spin out of a certain skill, like stamping a deed to show it is recorded then registering it in the record book, they can be moved into a more important and valuable job, helping to vet input data for fully digitalised public registry for quality control purposes, or learning how to read property appraisals accurately and know what to question should something seem amiss for enhanced risk management. Human capital is wasted daily on tasks automation can do when it would be better utilised on responsibilities for which there is neither time nor talent available to handle, leaving the most important work undone. As we move forward with the necessary digital transformations, any failure to truly advance our human capital resources could very well be our undoing. When talking about data infrastructure and the need in The Bahamas for a proper land registry, key elements for a path to success post Covid-19, the interruption in business as usual also demonstrated our interdependence on the world as whole. In introducing the first digital currency, the Sand Dollar, the Central Bank of The Bahamas looked at what others had done around the world. No one had to invent the wheel twice, nor refuse to take advantage of it because someone else designed it. The digital economy requires openness and cross-border collaboration so we must break the status quo and integrate deeper into the global community. We must embrace an open worldview knowing that the new business models that thrive in this environment are undergirded by flat, permissionless, decentralised, distributed global networks. The Bahamas is perfectly positioned to lead in technology, innovation, virtual assets and digital age operations. Equally disruptive as it is exciting, this new digital world is already expanding here in The Bahamas and its impact is being felt in various ways. While on one hand the current industrial revolution has implications for financial services firms, many of which must seek to modify their business models just to continue to operate. On the other hand, we are seeing opportunities emerge as a response to the Covid-19 crisis.
We have seen very promising innovation with the introduction of digital wallets in anticipation of the launch of the Sand Dollar, which will foster greater financial inclusion. Once we achieve mass adoption within the digital economy, we will begin to benefit from the network effects in capital markets, which will be driven by a fully digitalised regional junior stock exchange and crowdfunding platform. Then we will see the knock-on effect in other sectors with the creation and increased demand of hi-tech businesses and new high-paying jobs in areas such as data protection, cyber security and digital marketing. Technology also facilitates solutions that let us re-tool, innovate, avoid waste and scale up much faster even in more conventional industries, such as agriculture and fisheries, than was possible just a few years ago. In this digital world it has never been easier for people to access knowledge and to learn, unlearn and relearn skills that are needed to thrive. Therefore, as we deal with the disruptions caused by Covid-19, we should keep in mind a timely quote from Rahm Emanuel, former mayor of the city of Chicago and former White House Chief of Staff: "Never let a serious crisis go to waste. And what I mean by that is it's an opportunity to do things you think you could not do before."
By Brian Jones, in collaboration with Diane Phillips
Covid-19 has not slayed bricks and mortar, but it has awakened the sleeping giant of online competition and digital payment in places like The Bahamas
Brian Jones, Managing Director of Wealth Solutions, discusses the changing world of fintech and how The Bahamas has demonstrated its ability to innovate in the investment funds and fiduciary services space...
Investments in real estate will remain stable, particularly in highly desirable, safe countries and those perceived as secure, including The Bahamas, but increasingly those investments will be made by means of digital transmission.
The fierce, maybe even voracious, appetite for deep-rooted, broad spectrum technological advances will reap leapfrogging financial rewards, doing for investments what the Intel Core® Processor did to the Atom or Celeron processors, making them yesterday’s hot solutions and today’s cold toast.
Light touch regulation needs solid foundation
Special Directors are required to possess no less than five years’ experience in a discipline relevant to the administration of trusts
Private foundations
he suite of products offered in The Bahamas financial services industry includes Private Trust Companies (PTCs), private foundations and executive entities. In the jurisdiction these products are also subject to light regulatory controls. However, the fact that these products may be lightly regulated should not be equated with lax or no supervision. The Bahamas is committed to maintaining best practice within a well-regulated financial services industry. In that context, the industry focuses on ensuring that the products offered, while meeting the needs of those using such products, adhere to best practice and are properly regulated. Notwithstanding the reduced regulatory requirements in respect of PTCs, private foundations and executive entities, there are regulatory mechanisms and controls implemented to ensure such vehicles are compliant under Bahamian law and best international standards in the industry.
In the PTC regulatory regime Registered Representatives are the primary contact between the Central Bank and the PTC. Accordingly, the Registered Representative is expected to have certain information and documentation on the PTC. The information required to be maintained by the Registered Representative include client due diligence documentation (retained for designated persons, settlors, vested beneficiaries and protectors among others), documentary support that the entity meets the statutory requirements to be a PTC, documentation establishing the PTC including memoranda and articles of association, trust and designating instruments and curriculum vitae for each Special Director. The Registered Representative is also required to maintain the share register, annual compliance certificates, declarations on maintenance of accounting records, certificates of good standing and current client due diligence records. The Registered Representative must also make an annual certification that the PTC continues to meet the statutory requirements. Consequently, the Central Bank may request of the Registered Representative documents and information on each PTC it is affiliated with, as well as issue directives governing the PTC and the Registered Representative and undertake onsite inspections. To the extent there is any contravention of the requirements and directives of the Central Bank, or the Central Bank considers that the business of the PTC is being conducted in a manner detrimental to The Bahamas sanctions may be levied against the PTC and its Registered Representative.
Bahamas executive entities
Private foundations were included in The Bahamas’ financial services tool kit by the 2004 enactment of the Foundations Act, Chapter 369D. In accordance with the provisions of the Foundations Act a Bahamian private foundation is an entity with separate personality, resident and domiciled in the jurisdiction. Such entity is required to be duly registered with the Foundations Registry. The Foundations Act also requires private foundations established under the legislation to have a foundation agent or a secretary with responsibility for certain statutory duties under the legislation. A foundation agent is required to be a duly licensed financial and corporate services provider or a trust company licensed under the Bank and Trust Companies Regulation Act, Chapter 316, and not precluded from acting in such capacity under the Foundations Act. Among the factors which may preclude an entity from acting as a foundation agent is the existence of a conflict of interest in respect of the founder or beneficiary of the foundation or arising from a personal relationship with a foundation council member.
Another component in the tool kit of financial services in The Bahamas is the Executive Entity. The Bahamas Executive Entity (the BEE) was created by the Executive Entities Act, 2011. The BEE is “a legal person established by Charter”, for the purpose of performing executive functions in private wealth structures and has the capacity to sue and be sued in its own name. The Executive Entities Act defines “executive function” as:
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Sharmon Ingraham, Senior Associate, Higgs & Johnson discusses regulation and how a lighter touch approach to certain products only works if it is also backed by the underpinning of the best international standards...
Private Trust Companies (PTCs)
Enabled via a 2006 amendment to the Banks and Trust Companies Regulation Act, (Chapter 316, Statute Law of The Bahamas) and specific subsidiary legislation, PTCs are designed to reduce red tape and to be lightly regulated. PTCs may be companies, limited by shares or guarantee, incorporated under the Companies Act, Chapter 308, or the International Business Companies Act, Chapter 309. In keeping with its reduced regulatory profile, PTCs are required to have a minimum share capital of $5,000 and are assessed reduced licence fees in comparison with institutional trust companies. PTCs are exempt from the requirement to have the transfer of its shares pre-approved by the Central Bank of The Bahamas (the Central Bank) as is required of licensed banks and trust companies. PTCs are also exempt from certain other regulatory requirements including obtaining a trust licence from the Central Bank. However, the legislation requires PTCs to have a Registered Representative and a Special Director as mechanisms in the administration, oversight and monitoring of such entities. The Registered Representative is a valuable link in the regulatory scheme over PTCs, while the position of Special Director is directed at the due administration of the PTC. Registered Representatives are required to be in the jurisdiction and either a licensee of the Central Bank or a duly registered financial and corporate services provider approved by the Central Bank to act as a Registered Representative. To qualify as a Registered Representative an entity is also required to maintain a minimum share capital of $50,000. The legislation also sets minimum criteria for a Special Director of a PTC. Specifically, Special Directors are required to possess no less than five years’ experience in a discipline relevant to the administration of trusts. Such disciplines include law, finance, commerce, investment management and accountancy; specialties necessary in the proper administration of trust structures.
The Foundations Act requires the foundation agent to perform the statutory duties assigned to it under the Foundations Act as well as adhere to other duties which may be prescribed by any other written law. In this connection, the Foundations Act also establishes that the regulator which has oversight of a foundation’s agent will have corresponding oversight of the foundation. To this end, if the foundation agent is a licensee of the Central Bank, the foundation would be subject to the oversight of the Central Bank. The statutory duties imposed on the foundation agent by the Foundations Act include client due diligence in respect of the foundation. The foundation agent is required to provide to the Registrar of Foundations a registration statement detailing certain prescribed particulars. The prescribed information includes the name, purpose or object, and duration of the foundation. The constitutional documents and amendments thereto of the foundation are also to be retained by the foundation agent. The foundation agent is further required to provide registered office services to the foundation and to receive service of legal process or other notices on behalf of the foundation. The foundation agent is required to ensure the foundation is compliant with the legislation and provide a declaration thereof to the Foundations Registry. The foundation agent is further tasked with the monitoring of changes in the prescribed information and amendments of the constitutional documents of the foundation and is obliged to notify the Foundations Registry accordingly. The foundation agent is subject to a statutory duty of care under the Foundations Act. The foundation agent is therefore required to act honestly and in good faith in the best interests of the foundation, exercising the care, diligence and skill of a reasonable person in comparable circumstances.
“(a) any powers and duties of an executive, administrative, supervisory, fiduciary and office holding nature including, but not limited to, the powers and duties of (i) an enforcer, protector, trustee, investment advisor and holder of any other office … of any trust; and (ii) the holder of any office … of any legal person; and (b) the ownership, management and holding of … executive entity … and trust assets”.
The Executive Entities Act requires an executive entity agent to be appointed in respect of each BEE and, for the duration of the existence of the BEE, it is required to have an execute entity agent appointed. The executive entity agent must be a duly licensed financial and corporate services provider or a trust company licensed under the Bank and Trust Companies Regulation Act. The executive entity agent must also consent in writing to its appointment to act as agent in respect of the BEE. The executive entity agent is required to undertake the statutory duties imposed upon it by the Executive Entities Act and any other regulatory duties imposed by relevant legislation. The statutory duties imposed under the Executive Entities Act include ensuring the BEE is compliant with the legislation; undertaking necessary client due diligence, and ensuring proper documentation is maintained in respect of the BEE. Additionally, the executive entity agent also serves as the principal point of contact between regulators and the BEE. Accordingly, the executive entity agent is the designated recipient for service of any notice or proceedings in respect of the BEE. The Executive Entities Act also imposes upon the executive entities agent statutory duty of care. The executive entities agent is therefore required to act honestly and in good faith in the best interests of the foundation, exercising the care, diligence and skill of a reasonably prudent person in comparable circumstances.
Conclusion
The light touch regulatory control of the above type of organisations is effectively buffered by the presence of a regulated entity which provides services to the organisation. The regulatory supervision of each of the above bodies intersect through either a licensee of the Central Bank or a licensed corporate and financial services provider, bodies who are themselves subject to regulatory oversight. In place of direct regulatory control by governmental authorities, PTCs, private foundations and BEEs are monitored and supervised by regulated agents of their choosing and not required to directly interface with the regulators. This separation does not dilute the regulatory control over the bodies, however. Accordingly, well-managed Central Bank licensees or corporate and financial services providers will ensure that the all regulatory requirements when acting in the capacity as Registered Representative of a PTC, foundation agent of a private foundation or executive entity agent of a BEE are adhered to and its files are kept current, because their reputations are jeopardised by anything less. By Sharmon Ingraham
and executive entities. In the jurisdiction these products are also subject to light regulatory controls. However, the fact that these products may be lightly regulated should not be equated with lax or no supervision. The Bahamas is committed to maintaining best practice within a well-regulated financial services industry. In that context, the industry focuses on ensuring that the products offered, while meeting the needs of those using such products, adhere to best practice and are properly regulated. Notwithstanding the reduced regulatory requirements in respect of PTCs, private foundations and executive entities, there are regulatory mechanisms and controls implemented to ensure such vehicles are compliant under Bahamian law and best international standards in the industry.
When the going gets tough
Sustainability is almost always at the core of the development work we do – from building eco-cities, to assisting family businesses...
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hen the going gets tough, the tough get going. And we are going in the direction of unlocking $12trn worth in market opportunities in agriculture, energy and city planning; critical to delivering the UN Sustainability Development Goals. Despite the tragedies covid-19 caused, it has undoubtedly allowed us to clearly strategise for the future we want. Our company wants to do its part in positively impacting economies and industries on a global scale. The clients we represent are active investors and corporations that not only want to establish their legacies but also want to share the responsibility of creating better ecosystems. Speaking of ecosystems, both The Bahamas and the Middle East hold very special places in that of SPG's. The Middle East, because we have observed their tremendous ups as well as some downs to be able to navigate smoothly, and implement ambitious yet realistic strategies; and The Bahamas for their unprecedented support and ability to foresee global wealth trends.
Whether or not we believe activists like Greta Thunberg or think she is George Soros’s puppet, it doesn’t really matter – the world is seeking solutions to our global problems therefore the region has to too! Having said that, Arab nations haven’t fallen in the complacency trap just yet. We take honour in having learnt valuable lessons directly from the late Sheikh’s closest advisors, who were part of his visionary ideas to push for new policies; we know first-hand his philosophies remain embedded in the next generation who are eager to tap into the sustainability market. HH Sheikh Rashid showed incredible foresight in making sure their billions buy modern infrastructure, latest communication, resorts and a financial centre. The Bahamian Government once said no-one wants to do business with a country whose infrastructure is run down – seems their thinking is aligned as The Bahamas allocated record amount of money for improvements to ports, roads, bridges etc. The new Lynden Pindling International Airport in Nassau has been ranked as the second Best Airport in the Latin America and Caribbean region!
However, the Middle East has not gone too far astray; before discovering oil, Dubai was a port town interconnecting the Gulf to the rest of the world; a similarity to The Bahamas on the other side of the planet. Since first spending millions on the Free Trade Zone in the harbour of Jebel Ali, it has become an important business hub with market access to 3.2 billion people – a staggering amount for the little port city, which is not playing catch-up any more. Another similarity to The Bahamas is its access to the Americas and its Grand Bahama Free Trade Zone, which is superior to any other similar location in the region as it offers long-term tax concessions and benefits for financial, commercial and industrial enterprises. The Bahamas and countries like the UAE (whose nationals travel visa-free to the Bahamas and vice-versa) have entered into numerous agreements, so herein lies an opportunity because every bit of cooperation is a catalyst for further trade and ventures between the two nations. One of the agreements aims to reduce The Bahamas’ dependence on fossil fuels and increase trade between the two countries. Last year The Bahamas inaugurated a solar panel car park funded by Abu Dhabi Fund for Development (ADFD). The area with the greatest scope for growth is sustainability and impact investment. The Bahamas has leverage purely from their geographic position and access they provide to the US (and US securities). Their ability to deliver financial services to the highest of standards makes them stand-out to the Arab countries which can greatly benefit. What we know from our experience in the Middle East is, particularly amongst GCC countries, while each one has its distinctive traits, their global objective remains united – they want to put their cash to good work for the prosperity of their nations so let’s make sure we are all stakeholders of the process! SPG are engaged in projects that aim to impact and positively disrupt the world around us. Sustainability is almost always at the core of the development work we do – from building eco-cities, to assisting family businesses be governed to make room for the next generation, we are concentrated on the long-term trajectory and are extremely passionate about profit with purpose. Where we believe The Bahamas can add value to our Middle East tactics is making its financial services infrastructure available and better known to the right decision-makers within the region.
HH Sheikh Rashid al Maktoum, the father of the current Dubai Ruler, was many times asked to reflect on the region’s stability and its relationship to oil. He famously said ‘my grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel’. The eerie prophecy has been following the MENA region like a cloud; they’re faced with the pressure of offloading their product in a global environment that is increasingly more concerned about our planet.
Currently we represent a consortium, of which we are also a stakeholder, in securing partnerships with government organisations in a few Middle Eastern countries with the aim of developing local aqua and agriculture projects. We ask ourselves ‘Sustainability is becoming mainstream but is it moving the needle’? The fact that the G20 Summit has outlined the importance of fostering resilient water systems is extremely reassuring and is wave worth riding for multitude of reasons. Another recent SPG undertaking is the review of operations of a large resort developer who want to enter the eco-tourism space. We assisted them in acquiring the land and have taken the approach to look at this eco resort from both ends; on one side making sure it fits the sustainability bill while ensuring we build it into an investment product with a solid proposition to back it up. We have been on board our partners who specialise in developments like the treatment of sewage water or building sustainable infrastructure around plots of land to be used for agriculture as part of the resort. It supports local labour and local economy while crucially achieving a global goal that is aligned with the mission of all the parties involved – namely sustainability.
Svetlana Stoilova of SPG Partners discusses how the rise in ESG investing can help bring about important global change and how The Bahamas can play an important part for both companies and individuals looking to build their investment strategies...
The Middle East rather than relying on luck, are trying to create theirs – maybe checking to see whether the cloud I mentioned earlier can instead cultivate some new harvest for future generations? There are major upcoming events in the MENA region, further highlighting their importance on the global scene but also their desire to bring together business interests from around the world. God permitting we can travel by November, the G20 Summit in the Kingdom of Saudi Arabia has all its discussions directly related to sustainability; in one instance it highlights that KSA will continue the efforts of the Japanese G20 Presidency to advance talks of our oceans’ ecosystems. The $12trn market is becoming to look increasingly real. Sure, it can be met with scepticism, but in our experience with clients from the region they are actively engaging with their respective governments, partnering to cultivate sustainability-driven developments and sticking to the agenda. Attention to climate change is not just ‘trendy’ as many countries in the Middle East realise its inconceivable domino effects. A lot of MENA Government officials and diplomats I have spoken to say that the standard of living some Middle Easterners, especially from the Gulf, are accustomed to is simply not maintainable; they are afraid their countries have become welfare states. Furthermore, we all know that the local conflicts have led to mass migration and refugee crises that not only affect the region’s defence policies but strain infrastructure; add further migration due to climate change on top of the existing pressure and we see why the G20 are so fixated on sustainability. Profit for purpose is our sweet spot. The wealth created nowadays is at unprecedented levels, so the responsibility factor is extreme. We work with corporate clients who can benefit from government mandates (or vice versa) so often we find ourselves negotiating to unite a number of interested parties into executing the same vision. We are actually extremely careful as to what we call a sustainability investment; there are many ventures out there that have great potential but essentially it boils down to an investment in people.
However, the Middle East has not gone too far astray; before discovering oil, Dubai was a port town interconnecting the Gulf to the rest of the world; a similarity to The Bahamas on the other side of the planet. Since first spending millions on the Free Trade Zone in the harbour of Jebel Ali, it has become an important business hub with market access to 3.2 billion people – a staggering amount for the little port city, which is not playing catch-up any more. Another similarity to The Bahamas is its access to the Americas and its Grand Bahama Free Trade Zone, which is superior to any other similar location in the region as it offers long-term tax concessions and benefits for financial, commercial and industrial enterprises. The Bahamas and countries like the UAE (whose nationals travel visa-free to the Bahamas and vice-versa) have entered into numerous agreements, so herein lies an opportunity because every bit of cooperation is a catalyst for further trade and ventures between the two nations. One of the agreements aims to reduce The Bahamas’ dependence on fossil fuels and increase trade between the two countries. Last year The Bahamas inaugurated a solar panel car park funded by Abu Dhabi Fund for Development (ADFD). The area with the greatest scope for growth is sustainability and impact investment. The Bahamas has leverage purely from their geographic position and access they provide to the US (and US securities). Their ability to deliver financial services to the highest of standards makes them stand-out to the Arab countries which can greatly benefit. What we know from our experience in the Middle East is, particularly amongst GCC countries, while each one has its distinctive traits, their global objective remains united – they want to put their cash to good work for the prosperity of their nations so let’s make sure we are all stakeholders of the process! SPG are engaged in projects that aim to impact and positively disrupt the world around us. Sustainability is almost always at the core of the development work we do – from building eco-cities, to assisting family businesses be governed to make room for the next generation, we are concentrated on the long-term trajectory and are extremely passionate about profit with purpose. Where we believe The Bahamas can add value to our Middle East tactics is making its financial services infrastructure available and better known to the right decision-makers within the region. The Middle East rather than relying on luck, are trying to create theirs – maybe checking to see whether the cloud I mentioned earlier can instead cultivate some new harvest for future generations? There are major upcoming events in the MENA region, further highlighting their importance on the global scene but also their desire to bring together business interests from around the world. God permitting we can travel by November, the G20 Summit in the Kingdom of Saudi Arabia has all its discussions directly related to sustainability; in one instance it highlights that KSA will continue the efforts of the Japanese G20 Presidency to advance talks of our oceans’ ecosystems. The $12trn market is becoming to look increasingly real. Sure, it can be met with scepticism, but in our experience with clients from the region they are actively engaging with their respective governments, partnering to cultivate sustainability-driven developments and sticking to the agenda. Attention to climate change is not just ‘trendy’ as many countries in the Middle East realise its inconceivable domino effects. A lot of MENA Government officials and diplomats I have spoken to say that the standard of living some Middle Easterners, especially from the Gulf, are accustomed to is simply not maintainable; they are afraid their countries have become welfare states. Furthermore, we all know that the local conflicts have led to mass migration and refugee crises that not only affect the region’s defence policies but strain infrastructure; add further migration due to climate change on top of the existing pressure and we see why the G20 are so fixated on sustainability. Profit for purpose is our sweet spot. The wealth created nowadays is at unprecedented levels, so the responsibility factor is extreme. We work with corporate clients who can benefit from government mandates (or vice versa) so often we find ourselves negotiating to unite a number of interested parties into executing the same vision. We are actually extremely careful as to what we call a sustainability investment; there are many ventures out there that have great potential but essentially it boils down to an investment in people.
Currently we represent a consortium, of which we are also a stakeholder, in securing partnerships with government organisations in a few Middle Eastern countries with the aim of developing local aqua and agriculture projects. We ask ourselves ‘Sustainability is becoming mainstream but is it moving the needle’? The fact that the G20 Summit has outlined the importance of fostering resilient water systems is extremely reassuring and is wave worth riding for multitude of reasons. Another recent SPG undertaking is the review of operations of a large resort developer who want to enter the eco-tourism space. We assisted them in acquiring the land and have taken the approach to look at this eco resort from both ends; on one side making sure it fits the sustainability bill while ensuring we build it into an investment product with a solid proposition to back it up. We have been on board our partners who specialise in developments like the treatment of sewage water or building sustainable infrastructure around plots of land to be used for agriculture as part of the resort. It supports local labour and local economy while crucially achieving a global goal that is aligned with the mission of all the parties involved – namely sustainability. Frankly, we can work with any offshore jurisdiction but we have witnessed the Bahamian professionals and their government’s desire in facilitating business by ensuring their legislation is robust without diminishing the integrity of their financial system or the law. The Bahamas is in a position not only to offer sophisticated structuring to wealthy individuals from the MENA region but also to contribute their expertise and professionalism to more Public-Private Partnership scenarios, which SPG has been developing. We are all activists and we are all here to do our part in order to manifest the visions we have for the world around us. There is an unbelievable amount of room for growth as we are no longer at the exploration phase, rather we are making sure we see the needle shift.Positioning the Bahamas and its hub as a partner to these Middle Eastern nations controlling some of the biggest sovereign wealth funds is a solid starting point. The private sector is about to do a lot more than philanthropy. By Svetlana Stoilova
Frankly, we can work with any offshore jurisdiction but we have witnessed the Bahamian professionals and their government’s desire in facilitating business by ensuring their legislation is robust without diminishing the integrity of their financial system or the law. The Bahamas is in a position not only to offer sophisticated structuring to wealthy individuals from the MENA region but also to contribute their expertise and professionalism to more Public-Private Partnership scenarios, which SPG has been developing. We are all activists and we are all here to do our part in order to manifest the visions we have for the world around us. There is an unbelievable amount of room for growth as we are no longer at the exploration phase, rather we are making sure we see the needle shift.Positioning the Bahamas and its hub as a partner to these Middle Eastern nations controlling some of the biggest sovereign wealth funds is a solid starting point. The private sector is about to do a lot more than philanthropy. By Svetlana Stoilova
Over the past three years, international financial centres, like The Bahamas amended their investment fund rules and introduced commercial substance rules as a greater part of global fair play and global transparency in response to international initiatives. Europe’s persistence to eradicate harmful taxes practices and prevent base erosion taking place in some EU countries’ international financial centres created an opportunity to provide clear and deliberate regulations to mitigate against global harmful taxes practices and base erosion. As a part of the continued commitment to a global tax transparency, The Bahamas revised and updated, the Investment Fund Act, 2019 (the IFA) and the Investment Fund Regulation, 2020 (the IFR) and further introduced the Commercial Entities (Substance Requirements) Act, 2018 (CESRA). The legislative changes pertaining to IFA and CESRA were carved out of principles established by the OECD's Forum on Harmful Tax Practices and the EU’s Code of Conduct. While I can confidently say that the Bahamas has a long history of being a well-regulated jurisdiction, the updates of the IFA and IFR and the introduction CESRA based on those principles will ensure that as a jurisdiction, our product offerings amplify the need to counter harmful tax practices. Prior to updating the IFA and IFR, there were no licensing or registration requirements of fund managers when performing management functions of Bahamian domiciled funds. It was typical to incorporate a company to serve as investment manager of a fund and that company was ostensibly the entity that traded, introduced clients, collected fees, met clients, gave advice. The company did not need to have any sort of substance. Yester year, there was simply not enough legislative focus on fund managers, but this was just how it was done. Most of the vetting for ‘fit and proper’ and suitability was left to the experience of service providers that used strong internal and industry standards to mitigate business risk; the IFA and IFR again added the legislative teeth to mitigate not only business risk but now regulator and jurisdictional risks.
Legislative change
CESRA demonstrates The Bahamas’ seriousness to continuing as an important and viable global international financial center
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New requirements
ver the past three years, international financial centres like The Bahamas amended their investment fund rules and introduced commercial substance rules as a greater part of global fair play and global transparency in response to international initiatives. Europe’s persistence to eradicate harmful taxes practices and prevent base erosion taking place in some EU countries’ international financial centres created an opportunity to provide clear and deliberate regulations to mitigate against global harmful taxes practices and base erosion.
The determination as to what is considered substance is a matter of a few simple steps or question that should be asked with regard to fund management. 1) Are you a legal entity (Included Entity) that is tax resident in the Bahamas and conducts commercial activity through: a) A Company’s Act, including foreign entities registered under Part IV thereof; b) An International Business Companies Act; c) A Partnership Act; d) A Partnership Limited Liability Act; e) An Exempted Limited Partnership Act. 2) Are you an Included Entity; and do you have adequate relevant commercial activities within the Bahamas? An Included Entity must have the following characteristics: a) Conduct Core Income Generating Activity (CIGA); b) Have adequate people, premises and expenditure; and c) Be directed and controlled. 3) Are you tax resident outside of The Bahamas? Substance requirements under CESRA are NOT relevant for entities that are tax residents outside the Bahamas and are managed and controlled outside the Bahamas. Like the United Kingdom, The Bahamas follows a common law legislative model and has adopted the interpretation of tax resident simply as where real business is conducted and moreover, where the conduct of real business happens, management abides and is controlled from that place.
Fund managers who intend to manage Bahamian domiciled funds via a foreign entity are permitted to do so but must meet the legislative requirement of registrations and must demonstrate a foreign tax status in the jurisdiction that they organised in. Further, the foreign fund manager must provide a tax ID, a tax certificate from the jurisdiction they operate from and should file these requirements with the Competent Authority in accordance with CESRA. The new and updated substance legislative framework makes it clearer what should be defined as Core Income Generating Activity in an 'Included Entity' for fund managers. In accordance with CESRA: i) The taking on of decisions on the holding and selling of investments; ii) Calculating risks and reserves; iii) Taking decisions on currency or the interest fluctuations and hedging positions; and iv) Preparing relevant regulatory or other reports for government authorities and investors, CESRA is not exhaustive in the types of CIGA that a fund manager may carry out to be considered when measuring substance and is intended only to express some guidance on activities that are considered CIGA. CESRA intimates that there may be other CIGA activities not listed or mentioned in the CESRA. In other words, even if the legislation does not explicitly spell out an activity as CIGA, the responsibility is on the fund manager to demonstrate that it conducts CIGA to the Competent Authority. As it pertains to board of director functions, The EU and OECD guidelines emphasise direction and control with reference to board of directors meetings as a fundamental determination of substance, and CESRA mirrors this. Adequate board of directors meetings are to be held in the Bahamas. While adequate is not defined in the CESRA, its guidance exclaims "as much or as good as necessary and sufficient for a specific need or requirement.” What constitutes adequate is really dependent on the business and commercial activity of each fund manager. CESRA is less concern with physical presence but the legislation wants to ensure that board of directors with knowledge and experience govern fund structures in The Bahamas and a fund managers in the Bahamas are decision-taking bodies. In today’s covid environment, where travel seems to be at a stand-still and video conferencing is the new normal, this seems fitting and clear. Nonetheless, minutes, books and records must be maintained in The Bahamas.
The updated IFA, 2019 now requires an entity or a person to 1) be licensed if they intend to manage a Bahamian standard fund (fund without sophisticated investors) or a fund in any other jurisdiction other than the EU, or 2) be registered, if the intention is to manage a Bahamian SMART fund or professional fund or similar funds offered to accredited investors in other jurisdictions other than the EU. Fund managers that want to offer funds to the EU or manage EU funds must meet AIFM compliant requirements and are reportable quarterly to ESMA. Most funds established in The Bahamas have been SMART Funds (private label funds) and professional funds. The managers, whether domiciled in The Bahamas or in another jurisdiction, of both type funds will now, at a minimum, require registration. The registration process is a formal application with the requirement to provide standard due diligence as we have become accustomed to over the past many years, e.g. passports, constitutive documents and certified due diligence on all directors and ultimate beneficial owners etc. The IFA and IFR ensures that not only from a tax perspective, offshore managers are now encapsulated in the global exchange of information through the Common Reporting Standards, but it also ensures that fund managers interested in using The Bahamas have a real and tangible nexus to the jurisdiction. The tenor of the IFA is to ensure that investors are protected from incompetency, anonymity and obscurity. The Bahamian fund manager is front and center of the structure and is not any longer a nebulous shell that can easily abscond from taxes or neglect regulations, or more importantly, abandon investors. CESRA, the economic substance legislation, came in force in 2019 and is reportable to in 2020. This measure demonstrates The Bahamas’ seriousness to continuing as an important and viable global international financial center. Fund managers that are required to be licensed or to be registered must adhere to global substance requirement rules. While the CESRA focuses on several types of entities, for the purpose of this article, the focus relates only on fund managers operating or considering operating in The Bahamas.
As with all commercial business, outsourcing is a global solution to many companies that may have shortfall in human or financial capacity. Under the new legal regime fund managers are not able to outsource Core Income Generating Activities outside on The Bahamas. This is consistent with other international financial centres. Fund managers are allowed to outsource to third party service providers in the CIGAs only when: i) The fund manager is able to demonstrate adequate supervision of the outsourced CIGA; ii) The outsourced CIGA is conducted within The Bahamas; iii) The economic substance of the third party service provider will not be counted multiple times by multiple included entities when evidencing their own substance in the jurisdiction provided that the third party service providers will not be deemed to be counted multiple times by multiple included entities. More importantly the core business of a) portfolio management function or b) the risk management function, rests on the shoulder of the fund manager and those two activities can only be outsourced by the approval of the Securities Commission. The historical business practice of a fund manager being a 'letter-box' no longer exist in the Bahamas. While the rules for fund managers have change with regard to IFA, IFR and CESRA, the changes made are not onerous or beyond what is now expected for any global or international financial centre. The Bahamas will continue to enhance and develop legislative initiatives that will keep fund managers and other service providers domiciled here competitive and relevant for many years. The Bahamas remains a clear choice for global cross boarder tax transparent and compliant structures and these new legislative updates are The Bahamas’ true testimony of this. By Antoine Bastian
Antoine Bastian, MD, Genesis Fund Services discusses how The Bahamas has amended their investment fund rules and introduced commercial substance rules as a greater part of global fair play and global transparency amid changing international standards...
Trading: Providing a local presence, global reach
We employ more than 20 locally based finance professionals, who among them are proficient in seven different languages
Why The Bahamas?
s many wise men realised throughout history, in life the only constant is change. Our world is permanently evolving, and the pace of change is accelerating, driven by technological advances, socioeconomic dynamism and above all by the unstoppable march of history itself, as dramatic changes in the global geo-politics and the coronavirus crisis very recently reminded us of. The economic, political and social changes that will arise in the aftermath of the covid-19 crisis are very likely to, at least to some degree, shape the way we will do business and interact with each other for years to come. This dynamism is present in all spheres of life and demands from firms like ours the ability to constantly evolve and adapt to new challenges and landscapes. Technological advances in hardware, software and telecommunications mean the way trading was carried out as recently as in the early 2000s, quite often by phone, sometimes even face to face, with clients visiting the broker’s office to open or close positions, has fundamentally changed. Today service providers must offer ultra-fast execution, with latency measured in single digit milliseconds, available on a range of desktop, web and mobile platforms through which clients can access a vast array of different financial instruments, including foreign currency pairs, stocks, commodities, indices, ETFs and fixed income. The way trading decisions are made also evolved; today’s trader is increasingly sophisticated, relying on cutting edge technology, with advanced chart packages supporting complex order types.
The traditional broker has evolved to become more than just an intermediary; today we transcend being a pricing and execution provider, we are also developers of cutting-edge technology. It goes without saying that competitive pricing, premium customer service and a vast plethora of educational resources are also a must, for any broker wishing to remain competitive. Technology is but one of several competitive challenges we are faced with; Clients are culturally varied and geographically dispersed, through many countries across several continents, requiring a level of service that can be complex because of the different languages, cultures and varied time zones we need to cover. We also find that clients based outside of Europe tend to have different trading requirements, often demanding features that either aren’t available or are overlooked in the old continent, such as higher leverage and a wider offer of educational resources. Today, a large percentage of retail traders reside outside of Europe and the USA. Clearly, financial trading is no longer an activity exclusively reserved for those who are close to large financial hubs, such as London or New York; many in Asia, Africa, South and Central America, in the Caribbean, too, follow the markets avidly and are interested in trading. For these reasons, as interest for our products and services grew outside our traditional territories, a decision was made to expand beyond Europe. The Bahamas serves as an ideal hub for servicing these clients.
So why The Bahamas? Besides the natural beauty of the islands, nice weather and friendly locals, there were other reasons behind our choice; Chief among these was the availability of a well-educated and skilled workforce. The Bahamas is internationally renowned as a centre for financial services and we assumed it would be possible to recruit locally based individuals with experience in the industry; because of the relative complexity of the products we offer and diversity of our client base, our staff tend to be multilingual, university level educated and with work experience in the finance sector. Our assumption proved to be spot-on, as today we employ more than 20 locally based finance professionals, who among them are proficient in seven different languages. Another important factor was the legal regime; the Bahamas legal system is based in English Common Law and for us this was extremely important. However, the reason that weighed the most in our decision to establish a hub in The Bahamas was the presence of a reputable and globally respected regulator; that was paramount, and we found it in the Securities Commission of the Bahamas.
The country and the respective regulator are extremely important when it comes to making such a decision; ending up based in a jurisdiction with poor global reputation is damaging for any financial firm, as trust is one of the most, if not the most, important factor for many clients when they are choosing a provider. In this respect, once again, The Bahamas proved to be the right choice; ActivTrades was granted a Securities Industry Act Licence from the Securities Commission of the Bahamas on 14 May 2018, having since onboarded several thousand globally based clients. The success story of brokers in The Bahamas is founded, to some extent, on the attractiveness of The Bahamas as a business destination given the geographical location of the islands and the excellent transport links with the Americas and Europe; there are several direct flights to the main business centres on both sides of the Atlantic. Last, but not least, is the social and political stability of the nation, as well as a growing international reputation for transparency, to which the adherence to the Common Reporting Standards of the Organisation for Economic Cooperation and Development pays testimony to the commitment to being a well regulated international financial centre. As the number of international clients choosing to be onboarded under our Bahamas office grows, so will the need for recruitment of more locally based talent. The increasing popularity of online trading across the planet and particularly in South and Central America will drive the success of The Bahamas as a trading hub. In today’s challenging environment, an online broker’s success undoubtedly results from the ability to analyse and plan; to adapt and evolve. Over the last few years online trading faced several regulatory challenges, such as ESMA in Europe. Competitive online brokers have embraced the spirit of the challenge, recognising the legislation as being focused on the protection of retail clients. They have identified great growth opportunities in other regions and created new lines of products, specifically designed for institutional clients, which include white and grey label solutions, API and money management tools. Agile firms have also sharpened their focus on business partnerships, such as those established with IBs and affiliates. By Brendan Davis
Brendan Davis looks at how the availability of a well-educated and skilled workforce in The Bahamas, coupled with cutting edge technology gives a company the perfect platform to thrive...
INTRODUCTION
Video links
BFSB CEO Tanya McCartney introductory video
Minister Ellsworth Johnson - 'We are open for business'
MBH's Kevin Moree on advantages of CESRA
GSO Legal's Linda Beidler-D’Aguilar on family offices
Brian Jones, Wealth Solutions Leno on digitization
Svetlana Stoilova, SPG Partners video interview
Antoine Bastian, Genesis Funds on funds industry
Ricardo Evangelista, ActivTrades video interview
Thank you for reading
The Bahamas Special Report
