THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE

2022

THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE

A WealthBriefing annual report on The Bahamas financial services industry HIGHLIGHTS

A Captivating Choice for Captives; Fund Administration and The Impact of the Pandemic; The Bahamas: A World Contender ; How First-Class Regulatory Innovation Can be Crucial To A Jurisdiction; and many more...

Published by:

CLEARVIEW FINANCIAL MEDIA LTD 83 Victoria Street London SW1H 0HW United Kingdom

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In association with:

BAHAMAS FINANCIAL SERVICES BOARD

Bahamas Financial Services Board

Montague Sterling Centre East Bay Street P.O. Box N-1764

Nassau, The Bahamas

Telephone: (242) 393-7001 www.bfsb-bahamas.com

© 2022 ClearView Financial Media Ltd, publisher of WealthBriefing. All rights reserved. No part of this publication may be reproduced in any form or by any means, electronic, photocopy, information retrieval system, or otherwise, without written permission from the publishers.

INTRODUCTION

The Bahamas –advancing on all fronts

In this annual report, itself an amalgamation of mini reports that have appeared throughout the year, we cast our spotlight on an innovative financial centre that remains competitive while demonstrating a commitment to adherence to international standards of compliance and investor protection.

We review the progress of the Bahamian Dollar Digital Currency – the world’s first government-backed, blockchain-based Central Bank Digital Currency, otherwise known as the Sand Dollar. Wallet providers must follow strict guidelines if they wish to remain registered – one of the many safeguards that The Bahamas always builds into its new products.

The report looks at how professionals at Bahamian financial firms have weathered the worst of the pandemic by activating their business continuity plans successfully and adapting well to the new world of virtual meetings, thereby ensuring that their clients have kept on receiving their bespoke services. We see how a new cadre of individual investors has arisen because of increased reliance on digitization and how discerning investors all over the world are considering The Bahamas for financial products and services in response to current global economic conditions.

Also in these pages, we chart how The Bahamas has implemented a regulatory regime and policy framework for digital assets business. We highlight the growth of captive insurance entities registered in The Bahamas and why The Bahamas is an ideal captive domicile. We look at the Bahamian financial services – all of which spring from the ancient English law of agency – that allow advisors to assist HNWIs in their golden years with managing their assets while ensuring wealth preservation for future generations. We observe Bahamian brokers as they help international investors to make use of one of the most popular investment vehicles of the year – the exchange-traded fund or ETF. Meanwhile, we see how the Investment Funds Act 2019 has gained international acclaim for its innovative, pragmatic response to changing international standards and conditions.

CURRENCY EVOLVES IN THE BAHAMAS – A STORY OF INNOVATION

*By Alexander Christie and Vanessa Hall, Partner and Associate at McKinney, Bancroft & Hughes

All financial jurisdictions must evolve or die. The world is changing swiftly and it is almost essential for anyone who wants to keep up with the times to use digital currencies. Central banks around the world are experimenting with various forms of digital currency and The Bahamas is no exception.

wallets with conditions that wallet providers must satisfy before registering as wallet providers or before continuing to provide wallet-related services.

Each applicant must:

The Bahamas is the first country to implement a government-backed, blockchain-based Central Bank Digital Currency. According to ConsenSys, the blockchain software technology company, a CBDC is “a digital form of central bank money, which is legal tender created and backed by a central bank that represents a claim against the central bank and not against a commercial bank or a Payment Service Provider.”

THE CENTRAL BANK ACT AND THE BDDC REGULATIONS

The innovative Central Bank of the Bahamas Act 2020 includes, among other things, “electronic money” in its definition of currency. A year after passing it, legislators went a step further and implemented the Bahamian Dollar Digital Currency [BDDC] Regulations 2021, which define the BDDC as an electronic version of the Bahamian dollar which the Central Bank issues in accordance with the Central Bank Act. It is fully backed by reserves that the Central Bank holds and it represents a direct claim against the Central Bank.

(i) have adequate software and hardware; (ii) have taken adequate steps to safeguard the wallet holders’ funds; (iii) have clear rules to help it resolve disputes about the provision of wallet services; (iv) have a safe and reliable information technology system and “adequate interfaces to ensure interoperability, access and data protection, as well as robust contingency and disaster-recovery procedures”; and (v) have effective arrangements in place for the protection of clients’ assets and monetary arrangements consistent with any prescribed rules or guidelines that the Central Bank might issue.

Wallet providers must follow strict guidelines if they wish to remain registered

Registered wallet providers must also follow strict guidelines if they wish to remain registered. The Central Bank can suspend or cancel a wallet provider’s registration if it believes that the wallet provider, among other things:

According to the BDDC Regulations, a Bahamian Dollar Digital Cur rency wallet is a digital wallet issued by a regulated wallet provider that holds BDDC and is registered under the Central Bank Act. The regulations set out a clear and detailed process by which a firm can apply to do this business. They also safeguard the currency in those

(i) has not distributed BDDC within twelve months of the date on which its registration was approved; (ii) has obtained approval for registration through false statements or some other irregular means; (iii) has ceased to meet the criteria set out in the BDDC Regulations; (iv) is contravening the regulations or breaking any other law of The Bahamas; (v) is doing business in a manner which is detrimental to the public interest or to the interests of its wallet holders; and (vi) is contravening any term or condition subject to which the Central Bank granted its registration.

Although only the Central Bank can issue BDDC, the need for wallet providers creates opportunities for investment in The Bahamas.

The Bahamas is the first country to create a government-backed, blockchain-based CBDC

The Act empowers the Central Bank to issue any amount of BDDC that it sees fit, as long as it promotes and oversees a safe, sound and efficient national payment system. Nobody else may issue the currency of The Bahamas as electronic money in the jurisdiction.

The need for wallet providers creates opportunities for investment in The Bahamas

The regulations empower the bank to promulgate such codes, rules, guidelines, policy statements and practice notes as it sees fit in order to set limits or restrictions on wallet balances and transaction values for different categories of wallet holders:

(a) in furtherance of its regulatory objectives; (b) in relation to any matter relating to any of its functions under the regulations; and (c) in relation to the operation of any provisions of the regulations.

Furthermore, the Central Bank may issue written directions, generally or specifically, to any wallet provider in any circumstance where it believes that:

(i) it is necessary or expedient for ensuring the integrity or proper management of BDDC and the technology platform; (ii) it is necessary or expedient for the effective administration of the regulations;

(iii) it is of public interest; (iv) a person is engaged in, or is about to engage in, an unsafe, unsound or unfair practice with respect to BDDC; or (v) a person is likely to contravene or fail to comply with the regulations or any codes, rules, guidelines, policy statements and practice notes that have the force of law.

These provisions make the regime responsive to a fast-maturing and evolving industry.

THE SAND DOLLAR

The recent Central Bank Act and the implementation of the BDDC Regulations lay the foundation for the Bahamian CBDC, the so-called Sand Dollar. This is the digital form of the Bahamian dollar that the Central Bank of The Bahamas issues through authorized financial institutions. The user keeps the currency in his digital wallet by means of a mobile phone app or by using a physical card.

credit or debit card, while still considered a digital payment, is nonetheless an example of a bank moving fiat currency about. It is not as secure as a fiat currency transaction, due to the threat of accounts linked to such cards being hacked or by a card being compromised, but it is certainly efficient.

Both physical fiat currency and digital fiat currency have their pros and cons and it appears that the objective of the CBDC is to merge those pros and cons. By doing so, it makes payments quick and secure.

A BRAVE NEW WORLD

Why are central banks going down this path? They have, traditionally, participated in two kinds of payment transaction – fiat currency and intermediary bank payments. Technology is progressing in both of those areas and has led to the implementation of other (decentralized) digital currencies. People sometimes argue that physical fiat currency is on its way out, but the Central Bank says that it has no plans to eliminate cash.

More and more central banks in emerging markets are thinking of setting up their own digital currencies, the better to include more people in the financial system and decrease the cost of handling cash. This school of thought is in line with the Sand Dollar’s objective, which is to “[a]chieve greater financial inclusion, cost-effectiveness, and provide greater access to financial services across all of The Bahamas.”

So why is this even remotely beneficial to Sand-Dollar holders? The Sand Dollar allows for a better payment process, a reduction in transaction costs and better security in the form of multi-factor authentication, wallet security and cyber-security assessment.

Kristilina Georgina, the managing director of the International Monetary Fund, has summed up the objective of CBDCs perfectly.

“The history of money is entering a new chapter. Countries are seeking to preserve key aspects of their traditional monetary and financial systems, while experimenting with new digital forms of money.”

The Bahamas has taken a bold and innovative first leap into this new chapter, accomplishing something that no jurisdiction has done before. In doing so, the country has equipped itself well for the quickly-approaching brave new world of tomorrow.

* Alexander Christie can be reached on +1-242-322-4195 or at ambchristie@mckinney.com.bs; and Vanessa Hall can be reached on the same number or at vmrmiller@mckinney.com.bs

Ultimately, a CBDC such as the BDDC is an extension of paper money, also know as fiat currency. Fiat currency is legal tender issued by the Central Bank in the form of notes (sometimes called bills) and coins. The use of fiat currency is still the most popular method of payment. Some may argue that it is the most secure means of exchange and it is certainly the fastest. A payment on a

THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE 2022

A CBDC represents a claim against the Central Bank and not against a commercial bank or a Payment Service Provider

The Central Bank says that it has no plans to eliminate cash

CAPTIVE INSURANCE IN THE BAHAMAS – A SUCCESS STORY

*By Carl Culmer Jr, Manager for Policies and Practices at the Insurance Commission of the Bahamas

Over the past 10 years, the number of licensed captive insurance entities registered in The Bahamas has grown – at first very rapidly and, in the last five years, steadily. As a result, growth has occurred in overall net premium volume along with an expansion in the number of parent-company regions throughout the US and Europe.

The growth in The Bahamas’ captive market is largely attributed to small-to-medium sized entities (SMEs) seeking to set up their own segregated accounts. This option has proven to be cost-effective for those SMEs, especially since they can and do outsource administrative and operational oversight to locally-registered insurance managers, financial and corporate service providers and other financial service professionals such as lawyers and accountants.

gradual growth over the past three years. The chart below outlines the number of external insurers identified as captives for the period 2019 – 2021.

The present legislation has certainly helped the insurance sector to grow to a satisfactory degree and the Commission is determined to keep the applicable law competitive. It also remains intent on keeping its regulatory and supervisory regime effective and in line with the high standards of the International Association of Insurance Supervisors and the recommendations submitted by the Financial Action Task Force.

SMEs across varying industries are all interested in the Bahamian captive market. Their aim is to minimise losses that they might incur during the course of their operations. Such an entity might be either a stand-alone company, i.e. a single-parent company, or a registered segregated account in an already licensed segregated account (captive insurance) company. A stand-alone entity is incorporated, while a segregated account (or cell captive) forms part of a registered Segregated Accounts Company. A typical company considers the size, nature and complexity of its operations before applying for the appropriate category of licence that best fits its strategy and commercial interests.

Presently, all captives are licensed as ‘external insurers’ in accordance with the External Insurance Act 2009. The Bahamas continues to register captives that insure risk associated with various industries such as medical and healthcare administration, retail and wholesale distribution, agriculture, construction and real estate. The lines of business extended as coverage within these structures include workers’ compensation benefits, cyber-risk, directors’ and officers’ (D+O) insurance and excess liability.

After a spate of growth earlier in the last decade, the aggregate number of segregated accounts continues to demonstrate

In 2021, as part of its strategic plan to amalgamate legislation, the Commission began a review of the jurisdiction’s two principal insurance laws – the Insurance Act, 2005 and the External Insurance Act, 2009. The purpose of the review, which is still in progress, is to streamline regulatory and supervisory requirements and to enhance legislation to help insurance structures. The Commission has collaborated with industry associations, professionals and the general public as part of its consultative effort. Individuals and companies have been keen to use these discussions to find out more about the captive market with a view to establishing captives of their own to support their medium-to-long-term risk-management strategies.

The present legislation has certainly helped the insurance sector to grow

Despite the lingering effects of the global pandemic of 2020, international companies are still expressing interest about the establishment of captives in The Bahamas. The insurance industry continues to demonstrate its financial resilience to economic shocks. The effective use of captives can also serve as an additional absorber for companies that have suffered from such global shocks.

The Bahamas’ participation in the captive insurance industry dates back to the 1960s. Given the islands’ rich history in this niche industry, the Government has taken steps in recent years to ensure that this business actively contributes to the overall growth of the financial services sector. Local insurance managers and other

Presently, all captives are licensed as external insurers

EXTERNAL

IN THE BAHAMAS

financial intermediaries are still finding ways to promote both their own services and the jurisdiction as a whole in the captive market. The Bahamas Financial Services Board (BFSB) has helped them do so, highlighting the jurisdiction as a competent and competitive interna tional financial centre that promotes synergies between the industries of the financial services sector. The Commission, along with the BFSB and the country’s captive insurance professionals, participates actively in the captive insurance industry’s events and training seminars. This ensures that all stakeholders remain well-acquainted with the industry’s trending topics, challenges and opportunities. The Commission’s partnership with the BFSB has extended the promotional outreach of the jurisdiction as a captive domicile and has provided a forum in which meaningful discussions take place.

The BFSB, along with the Commission, will continue to work with the Government of The Bahamas to target the captive insurance and reinsurance industry as an area of economic interest. Companies that want to base their insurance business in The Bahamas should note the key regulatory requirements for approval.

The external (captive) insurer application process includes the following:

1. A scheduled pre-application meeting to discuss the proposed business plan.

2. Submission of a completed application which includes, but is not limited to, the following:

a. a detailed business plan;

b an actuarial review or feasibility study;

c projected financial statements for three years (inclusive of balance sheet , income statement and solvency calculations);

d. sample policies to be marketed and sold by the applicant;

e. details of the reinsurance programme (where applicable); and

f ‘due diligence’ documents for proposed shareholders, directors and senior officers.

3. Review of the application and consideration for approval by the Commission’s Board of Commissioners.

This is generally a two-stage process. Subject to a satisfactory review of the application, the Commission initially grants the applicant

approval in principle with conditions. Applicants are then given 30-60 days to satisfy these conditions of approval.

Once the conditions of approval are met, the Commission issues a certificate of licence to the applicant. Every captive insurance company in The Bahamas must, among other things, satisfy the following requirements:

• A minimum of two directors.

• The appointment of a resident representative in the Bahamas at whose office books and records must be maintained.

• A minimum of US$100,000 in share capital (additional regulatory capital may be required depending on the nature, size, and scope of the proposed entity).

• Application fee of US$100 (stand-alone) and US$250 (per segregated account).

• Annual (stand-alone) renewal fee of US$2,500.

Information about captive insurance in The Bahamas can be found on our website at www.icb.gov.bs. Interested persons may also contact info@icb.gov.bs

* Carl Culmer Jr can be reached on +1 242 397 4183 or at carlculmer@icb.gov.bs

The insurance industry continues to demonstrate its financial resilience to economic shocks

FUND ADMINISTRATION AND THE IMPACT OF THE PANDEMIC

* By Antoine Bastian, the CEO of Genesis Fund Services Ltd

The Coronavirus has caused immense disruption to business throughout the financial services industry, both in The Bahamas and abroad. Some fund administrators, however, have taken it in their stride. This is the story of one business that benefited from early updates to its practices in ways that it could not envisage before the virus struck.

During the past two years of this COVID pandemic, all business operations have had to deal with change on a large scale. Even the world of fund administration has changed and, at Genesis Fund Services, these changes have affected not only what we do but also the way we do it.

Before the pandemic, we all tended to view change as inevitable. However, the general pace of change in our industry was moderate until COVID arrived. That pace then accelerated enormously and catapulted us into an uncertain future. Change occurred more quickly than we might have liked or expected, but undoubtedly it has been for the better.

manual processes dramatically. COVID simply hastened and obliterated any vestiges of paper processes that were left because manual applications simply could not happen when everybody was working from home. The fund administration industry, and we here at Genesis, therefore adapted to the ‘new normal’ of paperless processing. We did this with subscriptions, redemptions, accounting and, most importantly, the review and collection of ‘due diligence’ data.

Without the advent of COVID, we would simply not have collected, vetted and processed ‘due diligence’ information from home as soon as we did. Before COVID, Genesis would never have permitted its employees, even its most capable and trusted em ployees, to have taken customers’ passports, bank details and other information into their homes because of the need for privacy and accountability.

A STEEP LEARNING CURVE

We now seem to be emerging from the worst of the pandemic and entering a new era. This is a ‘new normal’ for clients, for employees, for fund investors, for fund managers and for the jurisdiction. Technology, talent management and digitisation lie at the heart of this new normality.

THE PAPERLESS OFFICE

At Genesis, we took the fortuitous decision in early 2018 to create a paperless office. We did not have a crystal ball to help us foresee the events of 2020/21, which included the sudden and unfortunate COVID-19 lock-down mandate. We did, however, see that digital technology was evolving and pushing our processes – and the industry as a whole – towards more digitisation. We had to satisfy the demands of our clients and fund investors (especially institutional investors) for more advanced technological reporting, communication and management of their business data.

Fund administration’s age-old reliance on manual processes and high volumes of paper was near death. Fortunately, before the pandemic struck, we reduced our paper processes and all remaining

However, to continue operations effectively and to satisfy regulatory responsibility while keeping up best practices, we had to work quickly to improve and monitor our cyber-security data-protection – fund administration’s newest cost centre. We had never anticipated a time when 100% of the workforce had to work at home and the firm therefore had to take on the unbudgeted costs of buying everyone a new laptop, a second screen and an updated wifi device to speed up their work.

The advent of intense training in cyber-security and updates to controls that safeguard clients’ information have led to major improvements and benefits at financial service providers. Now, employees who are not in the compliance department have to discharge responsibilities for ‘due diligence’ when they are at home and must be conscious of the need to safeguard clients’ information and mitigate the risks involved in that work. This they now do very well.

The use of two- and three-factor authentication has become the norm. Firms are far more aware of their duty to safeguard clients’ data and have overwhelmingly improved the ways in which they mitigate risks that pertain to individuals during the pandemic. Videos, memos and virtual meetings regarding privacy and risk have increased tenfold...or at least, it feels like tenfold!

We have adapted to the ‘new normal’ of paperless processing

At Genesis, we have observed that COVID has made all staff more conscious of the risks that cyber-maladies pose. It has also made them realise that it is their regulatory – and laborious – duty to safeguard clients’ data.

BALANCING BETWEEN WORK AND LIFE

Many fund-administration staff have worked arduously and conscientiously at home. Buckling under the stress of working all hours in a domestic setting, logging on in the middle of the night and answering emails at ungodly hours, they want to take some time off and not be overwhelmed by their new virtual world. In short, they need help and the senior management team has to make it available to them. Because of this, the issue of everyone’s work/life balance has become a key concern at every meeting with the senior management team.

During the past two years of dreadful lockdowns, isolation and the need to work from home have changed the way in which so many of our colleagues view the work experience. Some of them have seen their parents and other family members succumb to the vicious disease or suffer grave illness from it. Many have changed careers and residency or moved to different firms in the same sector. Human capital has moved around in an unpredictable and somewhat disruptive way.

The retention of talent is also a top agenda item for the leaders of fund administrators. I remember, years ago, working outrageously long hours in fund administration – Sundays included. My employers expected this of me, but it is impossible for today’s firms to expect the same; people will not come in on Sundays. Firms must now be more flexible and competitive. They must hold onto well-trained, experienced and talented people. They must, moreover, be able to attract and recruit talented professionals.

Despite having experienced some staff attrition, fund administrators have had many opportunities recently to hire eager, talented professionals from all over the globe and from career paths outside the world of financial services. When considering human resources, fund administrators no longer want to employ mechanically-minded people to perform robotic functions. They would rather invest in versatile, problem-solving individuals who can work with various aspects of the business.

the business. However, although fees have gone down for services over the past ten years, the cost of providing straight-through processing (STP) safely and efficiently has sky-rocketed along with the cost of both hardware and software.

Technology has become as essential as talented human capital

Investment managers and investors in funds, moreover, have been insisting that their fund administrators ought to improve their reporting, data delivery and cyber-security continuously. Smaller fund administrators have found the piecemeal nature of their technological solutions burdensome. COVID has hastened their need for software connectivity, the better to improve results for clients. Technology is not only crucial for the provision of excellent service; it has become as essential as talented human capital. The need for fund administrators to provide collaborative business data through the use of technology has become standard. Their further collaboration with investment managers and fund administrators through the use of technology – with regards to both the safeguarding of clients’ data and the provision of seamless services – is another part of the ‘new normal.’

Investment managers have had to face similar burdensome movements in human resources and changes in technology and regulatory rules. As such, they have had to reassess their service providers to ensure that their talent, the quality of their services and the technology that they require have improved beyond pre-pandemic norms.

Over the decade prior to the pandemic, ‘due diligence’ questionnaires for fund administrators were standard. The pandemic, however, caused a noticeable increase in questions to do with technology and ‘due diligence’ which covered, among other things, data protection, redundancy and cyber-security. Investment managers and institutional investors have also intentionally asked more questions about corporate governance, diversity, equity and inclusion. It is now normal for fund administrators to provide dynamic governance, diversity and technological platforms.

CORPORATE CULTURE

Although the cost of recruiting, retraining and developing professionals has increased, firms have now fast-tracked these elements of the work experience and are using creative means to do so. When COVID disappears, the result at every firm will be a well-trained staff, a greater capacity for work and a better experience for clients.

During this period of COVID, fund administrators have been working hard to improve their technology. A few years ago, any one of them would have been served adequately by one system that handled accounting and its relationships with investors, one for corporate and compliance matters and perhaps another for other aspects of

Although technology and human capital are of prime concern for a good fund services organisation, it must have a good corporate culture that can knit the two together. An intentional drive to formulate and implement plans to ensure that we have a cohesive team has been crucial for us during COVID. The demand for talks and seminars on communication, mental health and mindfulness, or other subjects to do with the development of the whole person, has outweighed the demand for more accounting or compliance training by far. People want to work with people whom they like or admire, or with people who can help their careers.

The creation of a new ‘conscientious culture’ during and after COVID has become as important as the development of efficient accounting or ‘due diligence’ processes. At the same time, the maintenance and progression of a vibrant corporate culture has been one of the most difficult aspects of business in this pandemic. Collaboration among leaders and coaching in the workplace will continue to be an important aspect of the future work environment.

THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE 2022

The general pace of change in our industry was moderate until COVID arrived

All highly-functioning organisations have, or should have, continual plans to improve their corporate culture.

The Government has recently issued a White Paper on the future of digital assets

After the pandemic, The Bahamas will continue to be an important jurisdiction for investment funds. There is a high buzz about crypto-investing in our jurisdiction and the Government has recently issued a White Paper on the future of digital assets; it is evident that crypto-funds as an asset class represent the future. Globally, investment by institutional investors in the crypto-fund arena is relatively small but many fund managers are starting to consider some investment there, either directly in various crypto-currencies or through such other means as cryptoderivatives, crypto-firms or crypto-ETFs, i.e. exchange-traded funds.

The Bahamas’ regulated ‘SMART’ and ‘Professional’ fund classes are primed for the exploration of these new and exciting, but very real,

structures. Investment managers or institutions that are trying to figure it out can use the SMART fund model to gain cryptoexposure. Bahamian Professional Funds have no limitation on types of assets and can also be used as vehicles for crypto-asset exposure.

Whether in crypto-funds, private equity funds or hedge funds, the ‘new normal’ has positioned Genesis to be even more capable of providing fund-administration services of high quality in the world after COVID than it was before. Our base in the Bahamas has helped us retain and recruit highly talented staff. It has also been crucial for the creation of our fast and reliable technological platform.

* Antoine Bastian can be reached on +1 242 502 7020 or at abastian@genesisfundservices.com

THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE 2022

INVESTMENTS – THE SEARCH FOR A SAFE HARBOUR

*by Chris Illing, the Business Developer at ActivTrades

The Russian president has brought decades of peace in Europe to an end. His war in Ukraine, combined with the Coronavirus pandemic which began today’s cycle of high inflation in 2020, is causing a great deal of uncertainty in the financial markets. Investors in commodities, however, have done well.

2022 has been a challenging year for the international investor. During the height of the pandemic, the volume of mobile trading by retail traders grew enormously because people had plenty of surplus disposable income, more spare time in which to trade from the comfort of their homes and increasingly reliable internet connectivity.

Nowadays, anyone can easily trade in securities on the Internet. Online brokers make this possible, offering investors access to global trading venues through software and FinTech.

TRAPS FOR THE UNWARY

If someone wants to sit at home and invest on his computer or smartphone, he should compare the offers of the online brokers with each other. Although they offer their services at considerably lower prices than direct banks, i.e. banks with no branch networks, they are not completely free of charge. Sometimes the fee-free depots and trades are offset by return-reducing third-party flat rates, negative interest, exchange fees and trading commissions.

bright spot

In addition to the fees, the investor should pay attention to the asset classes in which he wants to invest when choosing his online broker. Not every service offers trading in crypto-currencies or contracts-for-difference, for example. It is also worth comparing the services with each other, because not every online broker has a multi-language-speaking customer service or can be reached by phone. The user interface should be clearly designed and easy to use. An online broker that offers a free demo-account for testing is recommended.

It is important for every investor in the stock market to have a balanced portfolio. Anyone who invests in stock listed all over the world and who relies on the large, well-known global stock indices is not going to feel the effects of volatility in the markets as badly as, for example, an investor who depends on Russian companies. One should not look at the next few weeks here, but at the next few years.

THE ASSET CLASS DU JOUR?

The inflation rate in the USA was recently 8.5% for the 12 months ending in March 2022. Crypto-assets are the most high-profile instruments that investors are using to protect their portfolios against inflation. They are, however, only one type of asset. Investors can look to real assets as well. Gold, for example, should continue to do well during the rest of 2022. The price of this precious metal rises when inflation is high but may dip if interest rates rise. The real interest rates, i.e. the interest rates after inflation, are therefore decisive and these are likely to remain negative globally. Even if the US Federal Reserve were to raise interest rates to 2% by the end of next year, which would be extremely high, real interest rates would still be well into the red given inflation of 4%. This should elevate the gold price.

In a year in which stocks have struggled and bonds have done worse, commodities are an isolated bright spot. It is important to note that investors in commodities have been able to gain this year from increases in the prices of raw materials. Investors obviously know that energy prices have surged this year, with the war between Russia and Ukraine interrupting the flow of oil and gas. The conflict has had its repercussions in many other commodity markets as well, since Russia and Ukraine export a whole host of commodities including wheat, corn nickel and palladium.

Along with exchange-traded products that target single commodities, several multi-commodity exchange-traded funds found themselves to be very popular.

ETF INVESTMENTS

Exchange-traded funds are popular with our investors as trading instruments. An ETF is a type of pooled investment security that

Stocks have struggled and bonds have done worse, but commodities are an isolated

operates much like a mutual fund. The fund tracks a particular index, sector, commodity or other asset but, unlike a mutual fund, an ETF can be purchased or sold on our trading platforms in the same way that a regular stock can.

QQQQ trades on the Nasdaq exchange and is one of the more popular ETFs. This security offers broad exposure to the tech sector by tracking the Nasdaq 100 Index, which consists of the 100 largest and most actively-traded non-financial stocks on the Nasdaq.

a regulated broker. In addition to various problems that beset the spot market itself, the unassisted investor faces some complex transactions if he wants to invest in bitcoin directly, even through an exchange. If he looks at the disclosures made by one of the exchanges that offers bitcoin, he might see a text in the small print that says “you could lose all your money in a fork.” He must then spend some time on the Internet to find out what a fork is on the blockchain. Many people are comfortable with this process, but there are certainly some who are not amenable to the challenges of dealing in a new asset like that in its raw form.

Alternatively, the Direxion Daily S&P Biotech Bear (LABD) 3X Shares seek daily investment results, before fees and expenses of 300% of the performance of the S&P Biotechnology Select Industry Index.

The first US Bitcoin-linked ETF is the ProShares Bitcoin Strategy ETF (BITO.US), which offers investors a familiar way to gain returns but with the liquidity and transparency of an ETF. An investor can expose his portfolio to bitcoin easily with this. When BITO was launched back in October last year, it became the fastest ETF to reach $1 billion dollars in assets under management.

THE TRIALS AND TRIBULATIONS OF INVESTING

If a retail investor trades in an ETF, especially a crypto-related one, he will gain some advantages if he does so with the help of

Then, of course, there are the issues that surround custody and wallets. Once the investor is in an exchange, he has only just embarked on some tough decision-making. He must then determine whether the exchange ought to hold his wallet, whether he ought to hold his own wallet, whether he ought to hold his wallet and keep his code on a memory stick, or on a piece of paper in a vault, and so on. Many small investors are looking for simpler ways to take part in the crypto-market and brokers offer them one way of doing this.

* Chris Illing can be reached on +1 242 603 5200 or at englishdesk@activtrades.bs

THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE 2022

An ETF is a type of pooled investment security that operates much like a mutual fund

Entrepreneurs, Asset Managers

GOVERNANCE & BUSINESS SERVICES

Governance Services including Directorship & Protectorship.

Oversight & Execution of Payments.

Settlement of Fund Subscriptions & Redemptions.

Tax Information Reporting/Reporting Officer Services.

Escrow Services.

FUND SERVICES

Accounting Services for Investment Funds.

Investor Relations with Registrar and Transfer Agent Services.

Regulatory & Special Reporting. Audit Coordination.

ACCOUNTING SERVICES

Accounting Services for Investment Funds, Fiduciary Structures, Private Companies, Operating Entities & Audit Coordination.

FIDUCIARY & CORPORATE ADMINISTRATION

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Telephone: + 242 397 6500

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THE BAHAMAS: A WORLD CONTENDER

* by Wendy Warren, the managing director of Caystone Solutions

By any standards, international financial centres have faced unprecedented challenges over the past several years and even in the most recent months. The Bahamas, however, continues to be among the world’s contenders in international financial services.

The ongoing COVID-19 pan demic, recent economic turbu lence and never-ending scruti ny by international bodies have intensified the business and competitive environment con fronting global financial cen tres. However, despite these conditions and the associated pressures, The Bahamas con tinues to be among the world contenders for international financial services. This resilience is a hallmark of the financial ser vices sector in The Bahamas. No matter the state of the economy, no matter what changes are occurring in the financial services and regulatory landscape, The Bahamas has always maintained its status as a global leader by being able to adapt to the new normal.

Three factors contribute to The Bahamas’ hardened resilience and ability to compete successfully on the global stage: it remains true to its roots and pedigree; it has adopted the highest standards for compliance, innovation and client-centric responsiveness; and it is focusing on and embracing developments that are emerging in the New Economy.

This trifold formula has been paramount in the Bahamas’ ability to attract and welcome international families, capital and business to its shores. The demand for residences and talent that The Bahamas offers, which is being embraced by family offices and those seek ing wealth management services, underscores why the location, regulatory environment and forward-looking legislation of The Bahamas are gaining strength and acceptance as its compelling core attributes.

A JURISDICTION THAT REMAINS TRUE TO ITS ROOTS

The Bahamas is home to more than 270 licensed banks and trust companies, including seven of the world’s top eight private banks and 35 of the top 100 global banks. These financial institutions deliver various services, including private banking, trusts, fund administra tion, accounting, legal, e-commerce, insurance, and corporate and maritime services. North American banks have been doing business in The Bahamas for more than a century, and European and Swiss banks have deep roots established over more than 70 years.

Financial institutions from other regions with growing economies recognise the advantages of operating in The Bahamas. Additionally, there is an excess of 800 funds licensed in The Bahamas and more than 60 fund administrators.

With a track record of more than 80 years in financial services, few jurisdictions offer the wealth-management experience of The Baha mas. This heritage is the basis for the robust legal framework cultivat ed for financial services. Over the decades, this investment climate has been nurtured and a stable and predictable business environment anchored by the thousands of Bahamian professionals who work side by side with expatriate colleagues in the hundreds of service providers that call The Bahamas their home.

There is a sound and proven infrastructure in place that has been built and modernised over the last 20 years. This has facilitated a highly competitive and market-responsive set of financial service offerings and has, at the same time, allowed The Bahamas to move forward in a very confident fashion into the New Economy and its various elements.

One of the critical elements of the Bahamas infrastructure is a solid public-private partnership where communication is open and frank among all three participants involved with this agenda: government, regulator and private sector. This public-private partnership facilitates our engagement in creating and investing in our wealth management pedigree and areas of new economies such as digital assets, carbon credits, and ESG-relevant solutions.

THE HIGHEST STANDARDS FOR INNOVATION, CLIENT-CENTRIC RESPONSIVENESS AND COMPLIANCE

After 2000, as a financial centre, The Bahamas had to become more conscious of and proactive in reflecting global norms. As a result, our regulatory foundation has become vital. From a worldwide connec tivity perspective, we see this transition paying dividends today in

“Financial institutions from regions with growing economies are recognising the advantages of operating in The Bahamas”

light of what we endured in the past two decades. It has been a dynamic period in that we have had to be fearless in striking the right balance between being compliant and aggressive. We will tweak if we perceive a need to tweak, but we will not stand still. We will always be responsive and reflect the needs of our clients and our partners.

Foundations are a prime example of this fearlessness. When The Bahamas made specific changes to facilitate the introduction of foundations, we received significant pushback. Some people said: “Wait a minute – foundations – are these not tools for inappropriate behaviour?”

However, we were very confident that our regime was sufficient ly strong to provide a robust, well-regulated environment in which foundations could be used appropriately. The perception of founda tions might have been negative elsewhere, but now that some ten years have passed, we can see that other common law jurisdictions have followed suit.

Although 2020 and 2021 have been unprecedented years for many industries, they have brought in a host of new and amended regu lations for local financial and corporate service providers who carry the potential to transform the very landscape of the industry in The Bahamas.

The Financial and Corporate Service Providers Act 2020 enhances the legal and regulatory framework for those who provide corporate and administrative services. Meanwhile, the new Banks and Trust Compa nies Regulations Act 2020 consolidates and modernises the law that regulates local banks and trust companies and enhances governing powers for The Central Bank of The Bahamas. The introduction of the new Investment Funds Act 2019, which further improves the regulato ry framework of Bahamian investment funds, allows for the appoint ment of international fund administrators and generally rationalises the responsibilities of all the key parties.

The Office of The Bahamas Attorney General will be submitting a re-rating of the final two of the FATF’s 40 Recommendations to the Caribbean FATF – one addressing not-for-profits and another addressing the effective regulation and supervision/monitoring of virtual asset services providers or VASPs, working with the Securi ties Commission of The Bahamas on the latter. These latest changes ensure compliance with all 40 of the FATF’s recommendations.

All of these efforts enhance the risk profile of The Bahamas as an international financial centre, making it an attractive jurisdiction for financial services.

THE NEW ECONOMY

Despite the recent turmoil in the crypto market, The Bahamas re mains bullish about the mid-to-long-term prospects of digital assets. It was one of the first countries in the world to introduce a digital currency in the form of the Bahamian Sand Dollar. The recentlyintroduced Digital Assets and Regulatory Exchange Act 2020 (DARE) was developed with a view to how we approach the broader pic ture. DARE is not a single stand-alone solution but rather a com ing-together of the overall features of the jurisdiction, such as private banking and funds, the better to establish a broader-based FinTech capability. It is just the latest example of the strength and flexibili ty of the jurisdiction, the weaving together of elements to create a financial services fabric that is durable and responsive.

However, the new Bahamian economy involves much more than leadership in digital assets and companies being incorporated into the country’s wide range of financial service providers. The sector’s sustainability has implications for the broader economy. The diver sity within the financial services sector in terms of product offerings contributes meaningfully to the livelihood of the Bahamian people and the country’s economy. This contribution will become more pro nounced as the country pivots to invest in diversification, focusing on the “blue and orange” economies, which have been identified as pathways for more significant economic expansion, new business opportunities and wealth creation for Bahamians and international investors alike.

From the perspective of a level playing field, The Bahamas has passed a compendium of legislation within the past few years to meet in ternational standards regarding economic substance, the removal of preferential exemptions and the automatic exchange of tax infor mation to meet the European Union’s and OECD’s criteria for tax matters. This resulted in the EU removing The Bahamas from its list of uncooperative jurisdictions for tax purposes in March 2020. In addition, The Bahamas maintains the highest standards in the fight against money laundering, terrorist financing and other identified risks and therefore has been making significant strides in the fight against financial crime.

The anti-money laundering, counter-financing of terrorism and counter-proliferation legislative, regulatory and enforcement land scapes have been thoroughly reviewed and strengthened, with The Bahamas being deemed compliant or largely compliant with 38 out of 40 standards established by the Financial Action Task Force (FATF).

The Bahamas is looking to modernise its fishing industry by generat ing ocean sciences and marine conservation opportunities while sus tainably developing marine biotechnology, aquaculture and deep-sea exploration initiatives. Renewable energy industries are also on the horizon. Meanwhile, as a vital component of the Bahamian economy, the tourist sector is looking to design a new tourism model which fully integrates culture and the creative industry in The Bahamas.

Tourism and financial services actively support these initiatives do mestically and internationally, foreshadowing the time when the country’s traditional economic engines link up with and engage the country’s New Economy, with benefits accruing to both.

* Wendy Warren can be reached on +1 242 397 6500 or at wwarren@caystonesolutions.com

THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE 2022

“If we perceive a need to tweak, we will tweak, but we will not stand still”

ESTATE PLANNING: A SOURCE OF CERTAINTY IN UNCERTAIN TIMES

*By Sharmon Ingraham, a Partner at Higgs & Johnson

When a high-net-worth individual becomes incapacitated, her indisposition can interrupt the smooth management of her resources and can even cause discord between members of her family. Good estate planning – at which Bahamian lawyers and financial coaches are adept – can anticipate these problems, usually through the creation of a will, an enduring power of attorney and/or a health care and personal care declaration.

These documents – which can be used in combination with each other – enforce the wishes and directions of the person in question during any period of incapacity, whether physical or mental. The indi vidual, known in some cases as the donor, might be unable to communicate with people be cause she has had a stroke or an accident or because medi cal treatment has incapacitated her. She may be in ‘lockdown’ at a time when her business requires hands-on management. One of her offspring might have been trying to convince her to fund a business venture before her debilitating accident occurred, but other relatives might be trying to prevent this from happening now that the ac cident has happened. Her relatives, alternatively, might be vying to control her resources in the absence of any clear legal arrangements to cope with her incapacity. It is also likely that she will eventually grow old and cease to be able to decide where she ought to live, who should look after her and who should take charge of her business. The purpose of the documents is to forestall these problems by enforcing written decisions that the donor made before her incapacity.

The pandemic has brought much uncertainty into wealthy people’s lives. They are not able to predict its future course but they can, at least, plan for the future of their wealth and (in the event of inca pacity) of their everyday lives. They are more anxious to do so now than they were before the outbreak. Many have made it a priority to organise their affairs, taking steps to have their wishes documented and ready to be effected if necessary. Many people consider wills to be the only documents that they need to help them organise their estates.

Although the creation of a will is a prudent step, it is effective only between the date of death and the moment when the estate is wound up. To make sure that somebody is in charge of things when the high-net-worth individual is still alive but cannot express her wishes very well, she ought to tell her lawyers to prepare other docu ments while she is still capable. They should pay special attention to

the creation of powers of attorney, enduring powers of attorney and health care and personal welfare declarations. These are all parts of proper estate planning.

A POWER OF ATTORNEY

The law of agency comes into play when someone engages someone else to act on her behalf. The ancient power of attorney is founded in this sector of the law. It gives a person appointed by its terms the authority to deal with the financial and business affairs of another. The donor in question may – or may not – give this power to a relative. She might grant it to that person generally or she might limit it to a specific transaction or time frame. This traditional power of attorney, in its orig inal format and usage, is terminated by any period during which the donor is mentally incapacitated – perhaps if she suffers from a mental disorder, dementia or Alzheimer’s disease. There is, however, a more recent version of the power in British and Bahamian law.

AN ENDURING POWER OF ATTORNEY

An enduring power of attorney, created by the Powers of Attorney Act, Chapter 81, Statute Law of The Bahamas, makes it possible for a power of attorney to remain in existence and valid after a person has become mentally incapacitated. The use of powers of attorney and enduring powers of attorney permits the financial and business affairs of the do nor to continue uninterrupted during periods of absence, confinement, quarantine or incapability and enables the donee to act on her behalf.

A health care or personal welfare declaration enables the donor to convey her wishes and desires regarding medical treatment, the ex tent of any medical intervention and her personal care. In relation to periods of confinement, quarantine or inability, whether as a result of health concerns, restricted movement or otherwise, these additional documents can ensure that the plans and aspirations of the donor are discerned and fulfilled.

“The pandemic has brought much uncertainty into wealthy people’s lives”

Section 4 Powers of Attorney Act, which introduced enduring powers of attorney into the law of The Bahamas, provides:

“(1) The authority of a donee given by an instrument creating a power of attorney that:

• provides that the authority is to continue notwithstanding any mental incapacity of the donor; and • is signed by the donor and a witness to the signature of the donor, other than the donee or the spouse of the donee, is not terminated by reason only of the subsequent mental incapacity of the donor that would but for this Act terminate the authority.”

The Powers of Attorney Rules, established in accordance with the Act, go into more detail. The instrument must be drawn up in a certain way. Both the person who appoints someone to deal with her finan cial and business affairs and the person(s) she is appointing must sign it. It must then be lodged at the Supreme Court Registry. From then on, subject to any restrictions in the document, the appointed person(s) may use it and rely on it.

If, however, someone has to make decisions about health care and personal care, a power of attorney or an enduring power of attorney cannot apply. The scope of the authority derived from an enduring power of attorney is limited to property, business and financial mat ters. If it is desirable to convey wishes or instructions for medical or health-care decisions or other personal matters, these ought to be set out in a statement that declares the person’s directions.

A HEALTH CARE AND PERSONAL WELFARE DECLARATION

Many people consider it unthinkable and/or inhumane to be placed on machines or given other methods of treatment to sustain bodi ly functions when there is no detectable brain function, while other people want every medical resource to be available to sustain life for as long as possible. A health care and personal welfare statement or declaration can help members of a family determine their loved one’s position with regard to such treatment.

In some jurisdictions, such documents are termed ‘living wills’ or ‘ad vanced directives’ and are supported by legislation enacted for that purpose. There is, as yet, no Act in The Bahamas that mentions or permits the creation of such instruments specifically, but a person can declare her wishes in accordance with the Oaths Act, Chapter 60, Statute law of The Bahamas with the aim of preventing uncertainty and conflict from plaguing her family after she becomes vulnerable.

treatments being offered...This right of choice is not limited to deci sions which others might regard as sensible. It exists notwithstand ing that the reasons for making the choice are rational, irrational, unknown or even non-existent.”

In another English case, Re C (adult: refusal of medical treatment) [1994] 1 All ER 819, it was held that the court may exercise its in herent jurisdiction and rule, through an injunction or a declaration, that an individual is capable of refusing or consenting to medical treatment. This can include future medical treatment.

Finally, Mr Justice Munby stated in HE v A Hospital NHS Trust and another [2003] EWHC 1017 (Fam):

“I can summarise the law as follows:

• There are no formal requirements for a valid advance directive. An advance directive need not be either in or evidenced in writing. An advance directive may be oral or in writing.

• There are no formal requirements for the revocation of an advanced directive.

• An advance directive is inherently revocable. Any condition in an advance directive purporting to make it irrevocable...and any provision in an advance directive purporting to impose formal or other conditions upon its revocation, is contrary to public policy and void.

• The existence and continuing validity and applicability of an advance directive is a question of fact. Whether an advance directive has been revoked or has for some other reason ceased to be operative is a question of fact.

• The burden of proof is on those who seek to establish the existence and continuing validity and applicability of an advance directive.

• Where life is at stake, the evidence must be scrutinised with especial care. Clear and convincing proof is required.

• If there is doubt, that doubt falls to be resolved in favour of the preservation of life.”

This makes it clear that it is permissible for someone to make di rections for medical and health care as well as for personal care. For certainty and ease of reference, the authorisation ought to be in writ ing. There is no reported Bahamian case law on the issue as yet, but the expression of a person’s wishes, instructions and directions for medical treatment at some time in the future when she cannot com municate instructions verbally can help members of her family and medical professionals draw up a treatment plan. If the declaration addresses personal care, her wishes regarding such matters as living arrangements (whether to receive care at home or go to a residential institution) will help her family avoid conflict about “where grandma should live.”

In creating a health care declaration, one may derive guidance from the decisions of the courts of the United Kingdom. When considering the issuance of such instruments regarding medical treatment, Lord Donaldson of the English Court of Appeal held, in Re T (Adult: Refusal of Treatment) [1993] Fam 95, that:

“An adult patient who, like Miss T, suffers from no mental incapac ity, has an absolute right to choose whether to consent to medical treatment, to refuse it or to choose one rather than another of the

Good estate planning can offset problems that might arise when the donor is away from home for a long time. By creating a will, an enduring power of attorney and/or a health care and personal care declaration, she can ensure that her wishes and directions are clear ly discerned and effected during any periods of incapacity, whether physical or mental. The existence of such essential estate-planning documents can also ward off conflict and discord in her family. They are a source of comfort and certainty in the midst of uncertain and unsettling times.

* Sharmon Ingraham can be reached on T: +1 242 502 5200 or at singraham@higgsjohnson.com

“Many people want every medical resource to be available to sustain life for as long as possible”

HOW FIRST-CLASS REGULATORY INNOVATION CAN BE CRUCIAL TO A JURISDICTION

* by Christina Rolle, the Executive Director of the Securities Commission of The Bahamas

The Bahamas is a swiftly evolving environment for securities and investments and the regulatory body in charge of the process has used its imagination to modernise the rules. Its watchword is pragmatism.

The Digital Assets and Regis tered Exchanges Act 2020 –otherwise known as the DARE Act – and the Investment Funds Act – or IFA 2019 – have gained international acclaim for their innovative, pragmatic responses to vexing regulatory concerns. Legislative initiatives are op portunities to solve problems but they are also opportunities to innovate. At the Securities Commission of The Bahamas (SCB), we are deeply committed to cop ing with regulatory risks pragmatically, taking the view that this will distinguish us from others.

licensed as a Standard, Professional, or Specific Mandate Alterna tive Regulatory Test (SMART) fund. ‘Carrying on business’ in this context now applies to an investment fund that is incorporated in The Bahamas or offered for sale to non-accredited investors in The Bahamas. An investment fund is therefore required to be licensed based on the activity that it conducts or intends to conduct rath er than on whether or not certain service providers to the fund are located or licensed in The Bahamas.

REGULATORY RESPONSIBILITY AMONG RELATED PARTIES

The previous investment fund legislation did not provide for the reg ulation of investment managers and placed burdensome responsi bilities on investment fund administrators for funds licensed in The Bahamas. This may have met the needs of the primary users of in vestment funds in the early 2000s – private banks and trust compa nies servicing their clients – but as the funds industry evolved, this misalignment of responsibilities became too onerous for administra tors and did not address the lacuna of fiduciary duties which should be the responsibility of the investment manager.

Before 2019, by way of illustration, the legal framework that governed investment funds had not kept pace with international best practices and standards. It had supported The Bahamas’ wealth management industry at the start of the millennium, but a peer review that The Bahamas underwent as part of the International Monetary Funds’ Fi nancial Sector Assessment Programme in 2012 found it to be deficient in several key areas. As for the digital assets space, despite its growing importance to investors and wealth managers there was no body of law in place to provide much-sought-after legal and regulatory clarity.

In both instances, the Commission found itself in a position to use its technical expertise to develop legislation and recommend same to the Government of The Bahamas. We looked at the needs of stake holders, prioritised those needs and then came up with – and carried out – pragmatic, sustainable, best-in-class solutions.

PRAGMATIC LICENSING TRIGGERS FOR INVESTMENT FUNDS

The IFA 2019 dictates that an investment fund that carries on (or attempts to carry on) business in or from The Bahamas must be

Funds needed flexibility in selecting administrators and non-accred ited investors expected to be able to deal with vetted and licensed investment managers. The IFA 2019 brought these things about by arranging for the licensing and supervision of investment managers.

ADMINISTRATORS FROM PRESCRIBED JURISDICTIONS

A fund based in The Bahamas is no longer required to appoint an investment fund administrator in The Bahamas to provide its princi pal office. Investment fund administrators for Bahamian investment funds may be licensed under the Investment Funds Act, or licensed and operating in any prescribed jurisdiction anywhere in the world. This approach opens the door for international administrators to license funds under the Act.

APPOINTMENT OF INVESTMENT FUND MANAGERS

The IFA obliges each fund to appoint an investment fund manager, except in some very specific circumstances. The investment manager must be licensed if the fund is being sold to non-accredited investors but the manager or fund need not be licensed if the fund is being sold

“Legislative initiatives are opportunities to solve problems but they are also opportunities to innovate”

to accredited investors only. Importantly, the fund may appoint an investment manager licensed or registered in a prescribed jurisdiction without the need for licensing in The Bahamas. In such a case, there is a simple registration process.

CUSTODIANS AND OPERATORS

Each investment fund must appoint a custodian that must be inde pendent of its administrator, manager and operator, unless the fund’s operators certify that the fund’s structure or the nature of its assets do not require the appointment of a custodian. An investment fund’s operators are determined based on its legal structure. Operators are responsible for the operation of the fund in compliance with the IFA The operator is subject to an assessment of its fitness and propriety and must be independent of the administrator, unless it is exempted from this requirement, or the fund is structured as an investment condominium.

ACCESS TO EU MARKETS

Finally, the IFA 2019 is also compliant with the European Union’s Al ternative Investment Fund Managers Directive, or AIFMD. This allows The Bahamas to qualify for ‘passporting’ in accordance with the Di rective. The law grants a distinct licence to a manager that operates in the European Union or manages funds from the EU.

and able to react to new risk-related trends, or market development opportunities, as the evolving landscape demands.

To develop the legislation, the Commission first conducted a bench marking exercise of 13 select jurisdictions, concentrating on their approaches to regulation and also on global standards and best prac tices in the business of digital and virtual assets. It reached out to other regulators with relevant experience and consulted the financial industry and other stakeholders.

The DARE Act came into effect on the 14 December 2020. It provided much-sought-after clarity and successfully established a Bahamian legal and regulatory regime for the registration of digital token ex changes and for the issuance of digital tokens through initial token offerings.

DARE defines salient terms such as digital asset business, digital as sets service provider, digital token, non-fungible token, utility token and virtual currency token, among others. It intentionally does not set out to answer the question of whether a digital asset is a security or not.

The Act defines various types of digital assets and is clear about what is in scope for regulation. It also recognises digital assets or crypto-currencies as members of their own asset class.

By giving the space its own regulatory regime, The Bahamas has re moved the narrow question of whether a crypto-currency is a securi ty and has, instead, provided a framework whereby digital assets can be addressed holistically.

THE NEED FOR COMPLIANCE WITH GLOBAL AML/CFT/PF STANDARDS

The IFA 2019 also addresses the EU’s standards for investment funds regarding the regulation of auditors. Every fund that does not submit to a full annual audit is required to receive a certificate every three years from a qualified accountant that states that its books are be ing maintained in line either with International Financial Reporting Standards or the United States’ Generally Accepted Accounting Prac tices. Auditors must be approved by the Commission if they want to act on behalf of regulated persons.

THE NEED FOR LEGAL CERTAINTY REGARDING DIGITAL ASSET BUSINESS

The SCB’s primary objective in developing the DARE Act was to bring regulatory certainty to the dynamic, fast-paced and evolving cryp to-space. The Commission had already spotted the potential that the space represented for The Bahamas’ wealth management indus try as the interest of investors in financial technology (fintech) and crypto-assets was increasing globally. The SCB fielded interest from international fintech operators that wanted to operate in a well-reg ulated, compliant jurisdiction. The Government of The Bahamas had also made it clear that it intended to transform the jurisdiction into a regional fintech hub.

THE NEED FOR REGULATORY FLEXIBILITY AS THE MARKET DEVELOPS

Given that the digital assets market or crypto-space is still in its in fancy (or, in any event, far from mature), it was clear to the Com mission that it needed to establish a legislative framework that was not overly prescriptive. The Act allows the jurisdiction to be nimble

DARE’s approach to global anti-money-laundering standards and standards that counter the financing of terrorism and the proliferation of weapons of mass destruction (AML/CFT/PF) is vitally important. The Commission continues to concentrate on complying with the Finan cial Action Task Force’s Recommendation 15, along with its evolving interpretative notes. In keeping with R15’s principles, DARE subjects the digital assets business to the primary national AML/CFT/PF legislation of The Bahamas, which includes the Proceeds of Crime Act 2018, the Anti-Terrorism Act 2019 and the Financial Transactions Reporting Act 2018. In keeping with the FATF’s recommendations, DARE focuses AML/CFT/PF supervision and oversight on the digital asset service provider rather than on the new technologies themselves.

The term ‘beneficial owner’ in DARE is assigned the same meaning as in The Bahamas’ Proceeds of Crime Act DARE requires financial institutions to perform initial risk assessments prior to launch. The Act requires digital-asset businesses to have systems in place to pre vent and detect money laundering, terrorist financing and suspicious transactions and report the reasons for their suspicion to relevant competent authorities. They must also comply with the Securities Commission’s rules, polices and guidelines that govern risk manage ment and the prevention of money laundering and terrorist financing.

THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE 2022

“The IFA 2019 is also compliant with the European Union’s Alternative Investment Fund Managers Directive”

“The Government of The Bahamas intends to transform the jurisdiction into a regional fintech hub”

On 16 March 2022, the Commission published its AML/CFT/PF Rules for DARE. These rules are based on the FATF’s Recommendation 15 and its interpretative notes. They are supplementary to DARE and are also expected to evolve as the market evolves.

is a key consideration for The Bahamas in its approach to regulation”

A FLEXIBLE JURISDICTION

Pragmatism is a key consideration for The Bahamas in its approach to regulation and the jurisdiction continues to watch as trends in dicate a move towards securities and other asset classes becoming

tokenized. We are also mindful of recent emerging risks that came to the fore in the aftermath of the great bear market or “cryptowinter” of 2017-18. These risks must now be addressed in the regulatory framework and clear best practices must be established to protect investors.

If you know anything about The Bahamas, you know that we do not view our size as a handicap but as something that we can use to our advantage. The access that we, as regulators, have to industry players and regulatory addressees, policy makers and the consumers and investors whom we aim to protect, allows us to identify and act on urgent matters and to be innovative in providing pragmatic solutions to regulatory concerns.

* Christina Rolle can be reached on +1 242 397 4100 or at info@scb.gov.bs

THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE 2022

“Pragmatism

THE BAHAMAS: A FEARLESS BUT PRAGMATIC FINANCIAL CENTRE

*By Dr Tanya McCartney, the CEO and Executive Director of the Bahamas Financial Services Board

In this article we hear from the movers and shakers who have been shaping the financial life of The Bahamas in recent years.

The world is emerging from a challenging period. The global pandemic dealt a harsh blow to tourism-dependent economies like The Bahamas’ and many questioned whether there would be a domino effect through out other industries. Although many industries were impacted, financial services – the jurisdic tion’s second largest industry –proved resilient throughout the pandemic, staying steady in circumstances affected by rapid changes in service delivery channels and the regulatory landscape. Today, we remain a major global destination for wealth management.

On a per-capita basis, no other country can match the level of ex pertise that teems within our borders. We have an entire cadre of le gal, accountancy, trust, banking and insurance professionals working with and for financial service firms of all sizes and specialisations in the planning, creation and management of our world-class offerings. Our in-country expertise is a major driving force behind our success, serving as the springboard that propels our financial services sector through the best and worst times.

inaccurate ‘tax haven,’ ‘non-compliant’ narrative,” said Christina Rolle, the Executive Director of the Securities Commission of The Bahamas. “It is important to us that the jurisdiction not only keeps pace with, but anticipates, international best practices and is viewed globally as best-in-class with respect to our regulatory framework. This also is a big part of our story and the evolution and innovation you see in our financial services industry.”

Executive Director Rolle explained her strategy for balancing innovation with regulation further.

“If you take The Bahamas’ approach and positioning concerning the enactment of the Digital Assets and Registered Exchanges Act 2020 as an example, you can see that we, as regulators, took the time to speak with industry, to understand the needs of operators and, more importantly, to understand where regulation can play a much-need ed role for the protection of consumers and investors. In designing the legislation, we took a pragmatic approach that would enable us to address the space with robust authority but also with flexibility as it evolves. This is always the approach in The Bahamas – where regulators study the markets and take into consideration the needs and feedback from stakeholders.”

Wendy Warren from Caystone Solutions echoed these sentiments.

“I think The Bahamas has been fearless in its confidence that we can strike the right balance. If we think or perceive there’s a need to tweak, we will tweak, but we will not stand still, we will always be responsive and reflect the needs of our clients and our partners.”

A CULTURE OF INNOVATION

Over the years, despite multiple economic shocks and a rapid ly-evolving global market in financial services market and regulato ry landscape, The Bahamas continues to lead the way. You will find secure anchorage for your financial services and investments within our borders. We refer to our approach as measured innovation; each step we take is well-planned and strategic and balances the preser vation of our historical strengths with the need to evolve and lead the way constantly.

REGULATORS WHO INNOVATE

A prime example of measured innovation at work is to be found in our securities sector. “The Bahamas has done and continues to do substantial work to ensure that we reset the outdated and

Alexander Christie, a partner at the law firm of McKinney, Bancroft & Hughes, reflected on the culture of innovation that the jurisdiction has created over the years.

“The Bahamas historically has been very proactive in seeking out what is needed in the market. Let me give you a few specific ex amples. The Bahamas has very flexible trust legislation in terms of giving settlors certain retained powers. We also have the Foundations Act, which is really a civil law structure, but that was integrated into our common-law regime in The Bahamas to attract a different type of investor. Or look at our ICON fund structure, which was targeted specifically for the Brazilian market. We were quite innovative with the Smart Funds regime, which was really tailored for investors to allocate different risks to satisfy a very particular investor.”

“Financial services – the jurisdiction’s second largest industry – proved resilient throughout the pandemic”

As the second-largest contributor to our GDP after tourism, the fi nancial services industry is a central pillar of the Bahamian economy. Successive administrations have demonstrated their commitment to sustained innovation and success in this sector. The Government re mains committed to avoiding adverse listings, harnessing the potential of niches old and new and ensuring that our financial services regime continues to provide market-responsive wealth management vehicles.

CONSISTENCY, STABILITY AND SECURITY

As a result of the investment of a tremendous amount of resources, you will not find The Bahamas on any existing blacklists. We have met and exceeded global standards for anti-money laundering and coun ter-terrorism financing measures and established the highest standards of tax transparency and compliance. Investors can expect consisten cy, stability and security within the confines of the financial services sector.

We have responded to and adopted the standards of the Europe an Union that pertain to economic substance, ensuring that enti ties in The Bahamas are managed and conducting adequate business and removing all preferential exemptions for local entities operat ing commercially outside the country. We embrace change as an opportunity for growth.

Greater transparency for mandatory disclosures and the arrival of global minimum corporate taxes are issues that we are prepared to address in the near future. You can be sure that our response to these looming concerns will be thoughtful and that our resultant policies will be balanced and articulated clearly. Our Number One priority, as always, is to protect the interests of our investors, clients and other key stakeholder groups.

still give us a flexibility that other jurisdictions don’t have. Our dia logue was positive. It’s like the old paradigm of onshore and offshore jurisdictions disappearing and that in a sense we’ve become a bit like midshore now, so not offshore any more.”

To many in The Bahamas, the onshore-offshore debate has been fuelled by misunderstanding or ignorance about the true essence of such a jurisdiction. Caystone’s Ms. Warren added: “I will be a little bit provocative and say I think there was never an onshore and an offshore. We know many places in major economies provide similar features just like The Bahamas provides. We perhaps were ahead of the curve, vis-à-vis these other ‘onshore’ locations in terms of our movement towards transparency, towards accountability, towards regulation. It was easy to look at a small country and label it as off shore, but the reality is that we’ve always operated in a manner that was consistent with what was happening onshore.”

You can expect to see sustained jurisdictional excellence and world-leading innovation from our financial services sector. This is increasingly important because the world is grappling with inflation and economists have begun warning of an impending recession. Sav vy investors are positioning themselves to secure their assets and future while taking advantage of a re-opened global economy.

A GENUINE PUBLIC-PRIVATE PARTNERSHIP

One of the critical elements of the infrastructure of The Bahamas is a robust public-private partnership, where communication is open and frank among all three of the participants involved with this agenda: the Government, the regulators and the private sector. This public-private dialogue facilitates our engagement in creating and investing in our wealth management pedigree.

Chris Illing of ActivTrades Corp commented on the positive impact of this partnership.

“In foreign exchange, we had major regulatory changes last year and I just love the dialogue that you can have with the regulators. They were looking for real input from our industry, how we can kind of make it more compliant and safer, but don’t hinder the growth and

The defining turning point for this transition was in 2000, when there was considerable pressure on many jurisdictions, includ ing The Bahamas, to increase their regulation and transparency. Christel Sands-Feaste of Higgs & Johnson noted this.

“We have done that and now operate at a blue chip-level in terms of our regulation. We provide financial services in a way that is reg ulated, responsible and consistent with international best practices. Despite encountering considerable headwinds, we continue to retool, re-adjust and elevate the standard of the offerings and the jurisdic tion. When The Bahamas was made an IOSCO Category A signatory, that was a huge win in the investment funds space, particularly con sidering the country’s marketing focus on Latin America. Even in the digital assets space, where the regulatory framework is fairly new, the policymakers have indicated there are some refinements that need to be made and their commitment to effecting those changes as soon as possible.”

THE GATEWAY TO AMERICA

As a jurisdiction, we lean into our geopolitical advantages as a global transhipment hub – a gateway to the Americas – and as a politically, economically and socially stable nation with a strong international standing. While global markets and economies remain in flux, The Bahamas’ financial services sector remains a bulwark of strength, stability and consistency. This is not by chance. Through the stra tegic development of the industry, we have created optimal condi tions for our financial services stakeholders to grow and protect their economic interests.

This is why leaders in the world’s FinTech industry, for example, are now making moves to establish footholds in The Bahamas. Valdez Russell from FTX, a blue-chip digital assets exchange which has es tablished its global headquarters in Nassau, said that there were many reasons for this optimism – not only at FinTech companies but in other areas of business.

“As we build our global headquarters here in Nassau, we have our teams from around the world come in and out. We are seeing more people visit the jurisdiction to understand what is attractive. We are seeing the strength of our democracy, we’re seeing our modern

“Our Number One priority, as always, is to protect the interests of our investors”

“I just love the dialogue that you can have with the regulators”

infrastructure and access to talent as all being incredibly attractive, added to the fact that we’re in a good time zone which may differ from other jurisdictions. We should see more entities being in The Bahamas in such a way that other jurisdictions will want to know what it is that we’re doing.

ANCHORAGE IN A SAFE HARBOUR

“We just so happen to be a good country and a great place to raise a family, to consider retirement and to invest in. And while jurisdictions have other competitive advantages, it is our people who genuinely make the difference real.”

During these uncertain times, it is more crucial than ever for in vestments to be anchored in a safe harbour. The track record of our financial services industry speaks for itself. We have weathered storm after storm.

The Bahamas will continue to maintain its position as a global destination of choice for wealth management and wealth genera tion. We are committed to keeping our status as the complete and compelling choice for financial services for years to come.

* Tanya McCartney can be reached on +1 242 393-7001 or at TMcCartney@bfsb-bahamas.com

THE BAHAMAS: A COMPLETE AND COMPELLING CHOICE 2022