By NEIL HARTNELL
Tribune Business Editor
The Bahamas "could kiss the entire IBC market goodbye" if it gets its response to Europe's "ring fencing" demands wrong, an ex-Cabinet minister warned yesterday branding it a "make or break" issue.
Ryan Pinder, pictured, a former financial services minister, told Tribune Business that The Bahamas likely had just one opportunity to "get it right" in dealing with the 28-nation European Union's (EU) requirements, thereby ensuring it remains "relevant in the cross-border finance market".
Reiterating his call for The Bahamas to shelve legislation for a centralised Beneficial Ownership registry until global standards became clearer, Mr Pinder argued that this nation instead needed to prioritise meeting the EU's demands by the December 31, 2018, deadline.
He warned that tackling the Beneficial Ownership Registry at the same time as addressing the EU's "economic substance" and "ring fencing" requirements would place "significant strain" on the Bahamian financial services industry at a time when it was being bombarded by international regulatory initiatives.
Trying to address all these issues at once, Mr Pinder said, risked "causing a lot of damage" to the so-called "second pillar" of the Bahamian economy at a time when the industry was struggling to see its "value proposition" and develop a new growth strategy.
The now-Graham Thompson & Company attorney and partner, though, emphasised that his position on the Beneficial Ownership registry was "not now" rather than "not at all", as recent developments suggested global standards will evolve to the point where all countries will be required to create such a facility.
"I think it would be foolish to say it's not something coming down the pike," Mr Pinder said of a Beneficial Ownership registry. "Anybody in the industry knows that's where we're headed towards some kind of Beneficial Ownership registry.
"My point last week was that to do that right now would put significant strain on the industry when you look at what we're going through with the EU and the implementation of the Common Reporting Standard (CRS).
"I don't think it would be beneficial to the industry, and could cause a lot of damage if it [the Beneficial Ownership registry] was piled on top of everything else. We have a lot on our plate, and the industry needs to find a buoyant position. Right now it's not buoyant. It's very turbulent."
Mr Pinder, addressing a Bahamas Financial Services Board (BFSB) sponsored seminar last Friday, said the Bahamas needed to wait and assess the fall-out from the UK parliament's decision to pass legislation forcing the likes of the Cayman Islands, British Virgin Islands (BVI) and Bermuda to implement public Beneficial Ownership registries by 2020 before moving ahead with its own legislation that has already been tabled in the House of Assembly.
He yesterday reiterated that the Bahamas "has a lot of work to do in finalising" an 'economic substance' regime that satisfies the EU's demands for Bahamian-domiciled corporate and legal entities to have a physical presence in, and conduct real business from, this jurisdiction.
This is in addition to addressing the 28-nation bloc's demands for an end to 'ring fencing', which involves the provision of preferential tax regimes for non-resident entities and foreign investors that are not available to the domestic economy. Both issues are seen by the EU as critical to preventing tax avoidance, especially by multinational entities.
Mr Pinder, though, told Tribune Business that how the Bahamas responds to demands for 'ring fencing' elimination could be "make or break for the country". He warned that "if we deal with ring fencing in the wrong way" the Bahamas "could kiss the entire International Business Company market goodbye".
Bahamian-incorporated IBCs conduct all manner of legitimate cross-border transactions that could potentially be jeopardised, and Mr Pinder warned: "We have to be careful. We have to be creative, and think through these issues from a legal point of view, a policy point of view and a business issues point of view.
"We've got to get through this. It's in our best interests to see how these countries get through the situation [on public Beneficial Ownership registers] with the UK. Once there's clarity there we can, in a reasoned way, address the Beneficial Ownership issue.
"At this point it would be unfair to proceed with everything moving at the same time. We've got to prioritise and give the industry some idea of where the value proposition is for the country and financial services going forward. Right now, there is a lack of clarity on where the value proposition is," he continued.
"I think we will create an environment of growth for the industry, different growth from what we have experienced in the past, growth we want to see in areas we want to attract to the country. If we rush everything, and don't do it in a methodical way, we miss that opportunity - and it may be the only opportunity to get it right.
"If we don't do it properly, and with careful thought, we might miss the only opportunity to be relevant in the cross-border finance market globally, and we can't afford that. From speaking to clients and industry colleagues, I think the majority of industry shares that opinion."
Among the Bahamas' present tax-related 'ring fencing' regimes are the Stamp Tax exemptions for IBCs and the flat $300 Business Licence fee for non-resident entities. "This is where we have to be careful of not throwing the baby out with the bath water," Mr Pinder said last week.
While there have been calls to "equalise" the Business Licence fees paid by resident and non-resident entities, Mr Pinder said the impact on the latter was unclear. He called for more analysis of this and calls for Business Licence fees to be incorporated into annual licence fees, and not levied on turnovers.
As for Stamp Tax, Mr Pinder said the key issue was whether the tax exemptions were "equalised" with domestic companies or eliminated and 'grandfathered in' for companies already enjoying them.
"Alternatively, do we amend the Stamp Act to only impose Stamp Tax on Bahamian real property transactions?" he asked. "This would preserve the current environment where the utilization of IBCs for cross-border financing transactions, and pledging of assets and shares, is preserved. The same application, or non-application of the Stamp Act as the case may be, will be the same for domestic companies and IBCs."
Above all, Mr Pinder warned that existing business "can be put at risk" if the Bahamas is not careful in how it addresses 'ring fencing'. Besides cross-border share pledges and secured financing, non-resident asset managers, broker/dealers and others could be impacted, as well as the likes of family offices that do not need regulation.