Blog: Regulators Roundtable Discussion – Financial Services – Bahamas – Mondaq

Good afternoon,

I would like to thank my colleague minister Halkitis and his
team and the Ministry of Economic Development for hosting this
Regulator Roundtable and industry Briefing. This is a continuation
of our administration’s commitment of open dialogue with the
financial services industry. It comes at an important time as we
constantly are seeing the world stage create new and evolving
international best practices in regulation, something that from a
regulatory point of view, and an industry point of view takes a lot
of time and effort. We as a jurisdiction have strived to keep pace,
and in certain instances ahead of the pace in regulation, having
achieved certain major milestones in regulation and compliance over
the years. Today we will address and analyze existing and emerging
issues with financial services with the goal of positioning the
jurisdiction for continued stability and success.

History of Regulatory Excellence

The Bahamas through multiple administrations has established
itself as a country with a history of regulatory excellence and
compliance. For example, years ago the Bahamas achieved A
certification by International Organization of Securities
Commissions (IOSCO), better known as IOSCO A certification, an
accomplishment so significant that the Commonwealth of the Bahamas
at that time became the sole sovereign and independent country in
the Caribbean Region who has achieved IOSCO A status. This is a
significant commitment to international best practices and
transparency in securities regulation.

We have a history of adopting regulatory compliance to create
business opportunities. For example, complying with AIFMD allows
Bahamas-based fund managers to continue to market or perform fund
management activities for alternative investment funds (AIFs) in EU
markets. The AIFMD MOUs entered into by the Securities Commission
of the Bahamas set standards for co-operation and cross-border
supervision, making the supervision of alternative funds more
consistent globally and strengthening investor protection

The Bahamas has placed tremendous efforts over the last seven
(7) years (2015 – 2022) in addressing strategic AML/CFT/CFP
deficiencies. Progress was made each year with introduction of
enhanced legislation and attendant regulations (e.g. POCA, 2018,
FTRA 2018, ATA, 2018), supervisory and enforcement AML/CFT/CFP
regimes, and increased engagement with the professional
stakeholders, etc. These efforts and supporting evidence were
assessed by CFATF and FATF International Cooperation Review Group,
leading to The Bahamas being delisted from the FATF Grey List on 18
December, 2020. This was followed up with the significant
achievement obtained on the 22 December 2022 with the publication
of the Bahamas’ CFATF Follow-up report announcing that the
country had obtained compliant or largely compliant ratings with 40
of the 40 FATF Recommendations. The Bahamas became the 2nd
jurisdiction in the Caribbean and the Americas to attain such a
position and only the 6th in the FATF’s Global Network of 206
jurisdictions. We continue to strive for regulatory excellence.

Regulators Involvement towards Compliance

It is important that regulatory compliance and a progressive
approach not be left to Government or to private industries.
Regulators must also be involved in leading the way. We see this in
our regulators and they should be commended for their
leadership.

On the global level, at fora where thought leaders contemplate
the direction of digital assets regulation, you will find voices
from The Bahamas present and leading, with the Securities
Commission of The Bahamas, for example, actively participating and
contributing to the work of the International Organization of
Securities Commissions – IOSCO — as it seeks to understand
the regulatory risk the industry poses and develop suitable global
regulatory standards to mitigate them.

Likewise, we have recently experienced the Central Bank hosted
Fourth AML Research Conference where the President of the Financial
Action Task Force, T. Raja Kumar and Vice President, Elisa de Anda
Madrazo were present. This was an exciting opportunity in front of
the highest level of leadership in the FATF to dialogue. But more
than that, The Central Bank hosted AML Research Conference has
developed a reputation as being one of the preeminent research
conferences in the world when it comes AML matters and is now an
annual event attracting the preeminent scholars and researchers in
the areas.

These are the types of activities and leadership that is
required in order to differentiate The Bahamas in the regulatory
space. We will differentiate ourselves, but its not always easy and
for a small country like The Bahamas, as we all recognize, we are
generally judged at a different standard, it is not an equal
playing field. Therefore, in when it comes to regulation, and
specifically regarding money laundering, it is vital that we
demonstrate The Bahamas’ full-throated commitment to the global
fight against money laundering, terrorist financing and
proliferation financing.

Foreshadowing Future Regulatory Efforts

I am sure the regulators today will speak to areas where they
see regulation evolving and new areas where we will have to
address. There are a few areas that I think are important to
mention.

Digital Assets – I note that this will likely be a topic
of conversation, but I think it important to mention that this
industry, regardless of lessons learned from the FTX collapse, is
an industry in constant evolution and regulatory laws and rules
must likewise constantly evolve. I know the Securities Commission
has already done work on legislative reforms and started to develop
areas for attention in regulation. I commend them for their
commitment to constant reform and look forward to enacting new
pieces of regulatory legislation.

FATF and Legal Arrangements / Trusts – Given the
importance of the trust industry to The Bahamas, it is important to
note that additional regulation on the beneficial ownership of
legal arrangements and trusts may be forthcoming. Following the
June 2022 plenary meeting of the global Financial Action Task Force
(FATF), the anti-money laundering (AML) standards body has
published a consultation paper on revisions to its Recommendation
25, regarding transparency and beneficial ownership of legal
arrangements such as trusts.

Recommendation 25 currently requires trustees to obtain and hold
information on beneficiaries or classes of beneficiaries. FATF is
considering setting the nexus of such obligations to countries
where the trustees reside or where the trusts are administered.
FATF has asked consultation respondents whether it should create a
separate, standalone definition of ‘beneficial owner’ in
the context of legal arrangements, distinct from that for legal
persons and also seeks suggestions on strengthening the requirement
for countries to have access to beneficial ownership information in
respect of legal arrangements. These clearly will have material
implications for our trust business in The Bahamas.

Tax Reform – In July 2021 The Government of The Bahamas
expressed its support, for the proposals of the G20/OECD Inclusive
Framework on Base Erosion and Profit Shifting to reform the global
taxation system. This would have us impose a corporate income tax
on businesses in The Bahamas with gross annual earnings of 750
Million Euros or greater. A corporate income tax is clearly a novel
approach in The Bahamas and will have significant regulatory reform
for the country in tax administration, affecting almost every area
of the cross border economy.

The OECD/G20 Inclusive Framework on BEPS released just this week
technical guidance to assist governments with implementation of the
landmark reform to the international tax system, which will ensure
multinational enterprises (MNEs) will be subject to a 15% effective
minimum tax rate. As continued guidance is released by the OECD we
will have to advance our regulatory reform on taxation to ensure
that we are compliant and have a new corporate tax regime.

Conclusion

We will continue to have regulatory challenges and
implementation ion current areas, new areas and evolving areas. We
must continue to stay ahead in developing the regulation, but just
if not more important, implementing the regulatory requirements and
testing for effectiveness. These latter two areas should be of
significant focus going forward as these are where the valuation of
compliance will be focused.

In order for our jurisdiction to be a preeminent player in the
financial services industry with a reputation of regulatory
compliance there must be confidence of a nimble regulator, a
regulatory regime that is respected worldwide and incorporates real
time best practices, and a commitment of government policy to
advance the growth of the industry, assuring the jurisdiction is a
safe place to do business that will do what is necessary to keep
the bad actors out. Despite challenges, I am proud to say The
Bahamas is an example of the success of the model.

Thank you.

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