The Bahamas Advantage is the branding that has been embraced by the country’s financial services industry, an industry with more than 80 years of experience in international financial services. The branding accurately reflects the dynamic character of The Bahamas’ financial services sector as the jurisdiction, which marked 40 years of independence in 2013, continues to embrace innovation to create *“the best regulatory and business environment for the financial services sector, particularly wealth management*”.
Market responsiveness is the flame that ignites innovation in The Bahamas. Its flashpoint is the level and intensity of public and private interaction that is the basis of legislation creating client-centric products and services and a modern and compliant regulatory regime.
The Bahamas has the largest STEP branch in the Caribbean and Latin American Region with over 400 members steeped in knowledge and expertise on structuring for UHNWs. Its maturity as a wealth management centre provides it with an inherent understanding that changes to its regulatory and business environment should not be knee-jerk reactions to market or political conditions but, rather, measured responses that build on the trust and confidence that the jurisdiction has earned – and values – among the broad choice of global institutions which provide private banking, trust, asset management and related services to owners of capital from around the world.
Clear evidence of The Bahamas’ mature approach to enhancing its regulatory and business environment in view of market conditions and opportunities can be seen in the recent past – the former a demonstration of specific product evolution and the latter a reflection of broad sweeping product enhancement and innovation.
##Broad Brush Responsiveness##
At the end of 2011, following the uncertainty created by the global financial crisis, The Bahamas, in its characteristically purposeful and thoughtful manner, implemented a raft of legislative amendments aimed at bolstering the competitiveness of the financial services industry. No less than 15 new financial services related Bills were passed, accomplishing a number of very important objectives:
1. Fortifying the Bahamas’ clear position as a leader in private wealth management by removing barriers to dynastic planning;
2. Aligning the regulatory regime governing securities activities with international best practices;
3. Modernizing the insolvency framework for domestic and international business companies;
4. Complying, in a responsible and focused manner, with international standards set for accounting records and retention of records.
Among the amendments were:
* **The Rule Against Perpetuities (Abolition) Act, 2011** removed one of the few remaining obstacles to truly long term dynastic planning for settlors and testators of Bahamian trusts and wills.
* **The Purpose Trust (Amendment) Act, 2011** clarified provisions relating to the validity of a purpose trust and the definition of the rule against perpetuities.
* **The Trustee (Amendment) Act, 2011**, further enhanced the value proposition of the Bahamas Trustee Act, 1998 by introducing both substantive and minor amendments with respect to Settlor Directed Investments and the Arbitration of Trust Disputes.
* **The Securities Industry Act, 2011**, which repealed and replaced the Securities Industry Act, 1999. The legislation was designed with a view to meeting the standards outlined by the 30 Principles and Objectives of Securities Regulation of the International Organization of Securities Commissions (IOSCO).
The Bahamas Executive Entities Act was brought into force in April of 2012. The new legislation created the unique and ground breaking Bahamas Executive Entity (the “BEE”), designed specifically to resolve complex governance issues in fiduciary and wealth management structures. The BEE may act as a power holder in wealth management and estate planning structures, or in any other executive, fiduciary or office holding role ; indeed, the BEE is constrained from acting for any other purpose other than the carrying out of executive functions, which include acting as a shareholder of a private trust company (PTC) or as a protector, enforcer, advisory board or corporate director.
Since the introduction of the BEE, registrations have increased steadily as knowledge and awareness of the product and the advantages of incorporating it into any wealth structure is spread by ongoing promotional efforts. These advantages lie in the BEE’s singular ability to remove unnecessary layers of ownership at the top level of wealth structures, to concentrate control with the right people who have the assurance of limited liability and to generally facilitate proper governance to avoid the risk of family conflict damaging the family wealth. Wealth generators, particularly with family businesses, are ever more cognizant of the need to put in place proper corporate governance style processes. The executive entity lends itself particularly well to this purpose while giving clients a cost effective and flexible vehicle for structuring.
The introduction of BEE legislation in and of itself is testament to the client-centric approach of the jurisdiction. The BEE was created after the private client team at the international law firm of Lawrence Graham decided to tackle the long-recognised and non-jurisdiction specific problem of utilising the standard approach to shareholding of a private trust company. The BEE was developed with the firmin conjunction with a team of Bahamas professionals, and pushed through the legislature by the public private partnership embodied by BFSB and the Government of The Bahamas.
##A “SMART” Niche ##
Ten years ago The Bahamas introduced the SMART fund, a fund product that found a niche in its early development as a regulated investment vehicle largely for families and private clients. Later “models” were introduced to accommodate larger families and institutional investors. The SMART Fund is regulated in a risk based and flexible manner, innovative and unencumbered by comparison with anything that had come before. The SMART fund programme introduced radical new concepts: The ability to design a SMART Fund model to take into account client specific, regulatory specific or macro-specific needs. For instance, SMART 6 was created as a side-pocket fund to hold illiquid assets. SMART 4 was designed as a private investment vehicle for a family or family office. Whilst the requirements for qualification for a standard or professional fund are clearly defined within the law, the specific requirements for SMART Fund models are designed by means of regulator-approved templates, each of which creates a new SMART fund model. Any institution or person with a business case can submit a template for approval.
The number and type of SMART funds remains an open group. There exists therefore a mechanism for promoters to approach the regulator for approval of a specific style of fund and for that fund, if approved, to be allocated a risk based licensing and supervisory regime tailored for it sole use.
The past year has brought the introduction of the seventh Bahamian SMART Fund template, dubbed the “Super Qualified Investor Fund” (or SFM007). While all the other SMART Fund models had a relatively small investor base, a maximum of 10 or 15 investors, SMART 7significantly expands the possibilities for using SMART Funds more broadly. However, the new SMART 7 was specifically designed with a country-specific solution in mind. The SMART 7 mirrors the investor qualifications of the Brazilian Multimercado Fund which may invest up to 100% of its assets through an offshore fund vehicle. It may be offered on a private placement basis to up to fifty (50) “super qualified” investors who must make a minimum initial investment of US$500,000. This investor-centric fund model is designed more precisely to accommodate professional asset managers, institutional investors and ultra-high net worth individuals, all of whom stand to benefit from the risk-based approach to structuring and operating private placement funds available in The Bahamas.
##The Bahamas Advantage Reinforced##
What should be evident by the current and recent changes to The Bahamas’ business environment is that The Bahamas remains a responsive and innovative jurisdiction committed to increasing its value proposition to clients. The Bahamas understands that the new global economic reality requires a consistent commitment to improvement of its platform for owners of capital.
The Bahamas’ expansive history in financial services has created and fostered confidence in the experience and expertise of the thousands of dedicated professionals in the industry. This experience and expertise is no more evident than in the comprehensive and focused consultative process that is followed year after year in creating the best regulatory and business environment for the financial services sector, particularly wealth management.
The Bahamas is resolute in its belief that it must continue to embrace its core ethos as a progressive and responsible jurisdiction –that change is not only good but necessary.