{*B}Financial Services Industry Legislation**

The Bills to establish the Foundations Act 2004 and the Segregated Accounts Companies Act were presented to the Senate this past week, after having been passed previously in the House of Assembly. The Minister of State for Finance, Senator the Hon. James Smith, described these bills as important tools to facilitate cross border international business. He said the structures created by these Bills will provide, for a significantly expanded market, the stimulus for seamless business activity and greater strategic investment opportunities for potential clients.

Emerging from a period of transition that started in the 2000s, The Bahamas is committed to innovative product development, consistent with market expectations, and to reasserting preeminence in a highly competitive marketplace.

In order to take advantage of opportunities created by developments in the world economy, there is a constant need to upgrade and enhance a jurisdiction’s product offerings. The new legislation is intended to ensure that the nation continues to capitalise on the freer flow of capital markets, large growing multinational global operations and the decentralisation of business functions as part of its development strategy.

Jurisdictions succeeding in the new global environment are those that have equipped themselves to meet the sophisticated expectations of a diverse world market. The Bahamas is re-engineering its regulatory framework for the financial services sector, devoting attention to introducing measures that seek to preserve and ultimately increase its market share and this, said Senator Smith, is a healthy indicator of its adaptability.


The Foundations Bill bridges legal systems, and enhances the attractiveness of The Bahamas as a truly international arena for business. Specifically, the bill has been successfully adapted to the common law legal environment of The Bahamas, providing a “comfort level” to potential clients from those systems that are unfamiliar with alternative corporate structures such as trusts. Trusts are used in common law countries, while Foundations are more readily understood and recognised in civil law jurisdictions.

When the Hon. Allyson Maynard-Gibson, Minister of Financial Services and Investments, presented the Foundations Bill in the House of Assembly, she pointed out that it marks a milestone for the financial services sector in The Bahamas and is vital to the continued growth of the financial services sector. *”It is a milestone because The Bahamas will be the first common law jurisdiction with legal provision for foundations,”* the Minister said at that time.

She foreshadowed that Foundations legislation will become an important component of the overall strategy in the development of the financial services sector in The Bahamas, indicating that it will enable The Bahamas to attract new business from Europe and South and Central America, resulting in increased growth in the sector. *”We expect that having the most progressive trusts laws and soon foundations law, The Bahamas will seal its reputation as the first choice for clients seeking international estate and inheritance planning solutions,”* according to Minister Maynard-Gibson. Industry practitioners also say that the enactment of a foundations bill will complement the jurisdiction’s existing legislation dealing with trusts. Like the Trustee Act which has a reputation worldwide as being the primary choice of many settlers, similarly this new bill is expected to be a founder’s first choice for a foundation.

Parliamentarians were told that Foundations represent an expansion of the jurisdiction’s capability to service a new client base and its commitment to remain relevant to new and potential clients domiciled in civil law countries. Product features and advantages include the benefits of greater simplicity for clients and reduced cost to clients vis-à-vis the trust and, further, the avoidance of issues related to sham trusts and perpetuity issues.

The business of foundations is expected to be largely “financial management” of funds, and it is anticipated that this will have a significant effect in bringing bankable assets to The Bahamas for investment management by Bahamian based institutions.

At a media briefing for the STEP Caribbean Conference held in The Bahamas last month, The Chairman of the Association of Banks and Trust Companies in The Bahamas, Andrew Law, reported that his organisation has been a firm supporter of the Foundations Act 2004, because it believes that once the legislation is passed, The Bahamas will be the only jurisdiction in the world able to cater to clients that have business interests in both the North American and South American markets. *”We won’t have a competitor. We believe that The Bahamas is the only jurisdiction that will successfully be able to implement this legislation and actually use it.”*

**Segregated Accounts Companies**

In the Senate this week, Senator Smith said the legislation is expected to boost sectors such as captive insurance and investment funds. This type of structure reportedly has been used effectively in all major offshore centres and has also proved to be an important vehicle for e-commerce development.

The Bill essentially provides for a single company with individual parts, known as segregated accounts, which are kept separate from each other. Each segregated account is only liable for its own debts and not for the debts of any other segregated account within the company. Particularly noteworthy is the duty to keep the assets of each account separately identifiable.

During debate before the SAC bill was passed in the House, the Hon. Alfred Sears claimed its enactment will improve the usefulness of the Investment Funds Act passed by Parliament last year. According to Attorney General Sears, the Investment Funds Act and Regulations, and the SMART fund templates also approved, together with the new Segregated Accounts Companies Act, ensure that The Bahamas is in a strong position to strengthen its capital markets industry.

He commended the bill for passage into legislation as one *”in the series of new financial legislation set to enhance The Bahamas’ reputation of proper and transparent governance with a state-of-the-art legislative regime in the financial services industry.”*

**Legislative Package**

In recent months, the Government has introduced a series of legislation intended to promote the growth of the financial services industry. Minister Sears says this is in fulfillment of its commitment to the sector, as outlined in its political objectives “Our Plan”, and to ensure that The Bahamas remains a competitive international jurisdiction.

The Purpose Trust Bill and amendments to the Trustee Act (allowing for the concept of purpose trusts) and The Perpetuities Act (extending the perpetuity period) have been passed in the House of Assembly, strengthening the nation’s trust business. Also passed in the House has been an amendment to the International Business Companies Act.

**Purpose Trusts**

As a financial product, trusts have proven to be resilient, flexible and popular with institutions and high net-worth individuals engaged in commerce and business throughout the world. The Government recognises that as one of the premier international financial centres in the world, The Bahamas must maintain a modern statutory framework to govern trust business.

The Trust (Choice of Governing Law) Act, the Fraudulent Disposition Act, the Perpetuities Act, and the Trustee Act form the principal planks of the legislative platform for trust business in The Bahamas; the enactment of the Purpose Trust Act will complement and enhance this statutory regime, says the Attorney General. This is a specific type of trusts which is established for a non-charitable purpose and does not have specific ascertainable beneficiaries. Beneficial ownership is not vested in the trustee, who is required to administer the trust property in fulfilment of the stated purposes.

At the time of commending this bill for passage into legislation, Minister Maynard-Gibson said it will serve as one more important step in the modernisation exercise of the legislative platform underpinning the financial services industry in The Bahamas.

**International Business Company**

The IBC is widely considered a legitimate vehicle for international business and is fully compliant with international best practices. The corporate entity works well in conjunction with trusts and asset protection structures, and remains the vehicle of choice for fund incorporations. A Bahamian incorporated IBC allows a client to operate many aspects of a business with ease and confidentiality.

Minister Maynard-Gibson says the IBC is an important product which must be offered as a part of a comprehensive range of products and services to prospective investors. The Bahamas IBC Act represents modern company legislation and according to industry sources *”contains the most advanced and innovative company and investor oriented provisions in company management and administration”* available today.

Provisions in the Amendment to the Act include the reintroduction of tax exemptions that were originally granted in the IBC Act 1989 and repealed in December 2000; and for an IBC to register with the Registrar of Companies its register of mortgages and charges (non mandatory); the licensing of an IBC as an insurance company under the External Insurance Act; conversion of an IBC to a domestic company; simplified striking off provisions; additional time for filing of amendments to the M&As and notification of change in registered office; and a time period for the filing of the register of directors and officers and for filing any change in those offices.