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‘Find the sweet spot’ for financial services

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Brian Moree QC

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must “find the sweet spot” between meeting regulatory and market demands if its financial services industry is to survive and remain a key growth driver, a top QC has warned.

Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, told Tribune Business that The Bahamas has to carve out a niche where it serves the needs of the same countries that have imposed ever more onerous regulation on this nation over the past 20 years.

While acknowledging that the European Union (EU) and Organisation for Economic Co-Operation and Development’s (OECD) latest anti-tax evasion drives had further “shrunk the space” in which The Bahamas can operate, Mr Moree argued that its financial services industry’s future lay in making itself useful to the industrialised economies that form these groups.

He called for The Bahamas to develop “a business plan” that builds on existing evidence showing this nation, and other international financial centres (IFCs), “play an important role in the global economy” by pooling huge amounts of capital that are then reinvested back into the major onshore centres.

Rejecting the arguments of “naysayers” eager to sound the death knell for the Bahamian financial services industry, Mr Moree nevertheless conceded that the sector’s contribution to economic growth going forward was likely to be “reduced” when compared to past decades.

As a result, he urged the Government to pursue a dual strategy of “protecting and preserving financial services as much as possible” while also seeking to diversify the Bahamian economy by attracting/developing new industries that will offer stable, lucrative jobs.

Mr Moree added that The Bahamas now has to “let the dust settle” and monitor the fall-out from the pre-Christmas legislative package designed to ensure this nation escapes the EU’s New Year “blacklist”.

Warning that the impact was hard to predict, he told Tribune Business: “The ultimate impact of this legislation on the financial services industry remains uncertain, and we will have to carefully monitor that - and the impact throughout the economy - in the first quarter of 2019.”

“These are very major and substantial changes in our legislative platform, but the real challenge is to stay compliant with international agencies and, at the same time, offering services and products that are responsive to market demands.

“The space in which IFCs are going to be allowed to operate is shrinking within the global economy but, nevertheless, in my view there is a definite role for IFCs and the challenge for The Bahamas - as it is for other IFCs - is to find the sweet spot; find the area in which you meet an important market demand and remain fully compliant with the standards of these global agencies.”

The Bahamas has effectively been trying to find such a “sweet spot” for the past two decades, yet has been constantly kept off-balance by the never-ending barrage of anti-financial crime and anti-tax avoidance/evasion initiatives launched by the likes of the US, EU, OECD and Financial Action Task Force (FATF).

The most recent offensive, led by the EU and OECD, has forced The Bahamas and others to yet again overhaul their legislative platforms to comply with efforts to prevent multinational companies from avoiding/evading tax in countries where they operate by artificially shifting revenue and profits to lower or “no tax” jurisdictions.

Bahamian-domiciled entities that are part of corporate networks, especially those belonging to multinational companies, must now establish a physical presence in this jurisdiction and conduct “real business” rather than operate as passive fronting/holding vehicles. Those that fail to meet this “substance” test must submit to reporting requirements that will be passed to the relevant “home country” tax authority by the Ministry of Finance.

In addition, The Bahamas has also eliminated the preferential tax breaks offered to non-resident entities and foreign investors to comply with the EU’s demands to end “ring fencing”. These preferences, not available to the domestic economy, include 20-year Stamp Duty exemptions for International Business Companies (IBCs) that must all be eliminated by end-2021.

However, Mr Moree reiterated: “That’s the future of financial services. It’s all about staying compliant but meeting market demands so that there are good commercial reasons to operate within IFCs.

“There is empirical data to support the conclusion that IFCs are the most effective and efficient portals for the collection of large amounts of capital for reinvestment in the major industrialised economies.

“Therein lies the business plan we have to develop as an IFC to secure the industry going forward. IFCs will survive because they play an important role in the global economy, and it’s in the self-interest of the major industrialised economies to maintain IFCs for that purpose while, at the same time, their governments continue to try and ensure tax revenues don’t leak to IFCs,” he continued.

“That’s where we’re going to head, and we have to let the dust settle in 2019. No doubt there will be continued demands from the OECD, FATF and EU that we will have to address, but careful, smart strategic thinking will secure our future and provide an ongoing sustainable business model for The Bahamas.

“It is a challenge. We’re going to have to ensure our business model is market attractive and compliant with international standards. The key is to find yourself in that space and, once you fulfill a role that benefits the major industrialised countries, I think we’ll be OK. The challenge is to find that space.”

While financial services will remain a major GDP driver for The Bahamas, Mr Moree conceded that its economic impact going forward will be somewhat blunted by the onslaught of international regulatory initiatives.

While rejecting suggestions that the sector is dying a slow death, he said it made sense for The Bahamas to attract and develop new industries that will generate similar high-paying, professional jobs that have underpinned the nation’s middle class.

“The overall effect of all this is quite negative for financial services in a micro sense, but this is the reality today,” Mr Moree told Tribune Business of the OECD/EU initiatives. “There is a business model for the industry to survive, and we will continue to be a significant contributor to the economy.

“I’m not one of the naysayers saying the financial services industry is over, but it’s getting more and more difficult. Without subscribing to the view our financial services industry will be eliminated; I don’t think it will be, but its contribution is going to be reduced, and that points to the bigger question of diversifying our economy.

“We’ve got to preserve as much as we can of financial services - it’s a key growth driver, underpins the middle class - and we need to do what we can to protect it,” the well-known QC continued. “But, at the same time, accept it’s not going to contribute at the same level as before.

“We need, at the same time, to be diversifying the economy and developing other industries. But that is not to capitulate. It’s not to concede that the financial services industry is dead. That is a non-sequiter; one does not mean the other.

“On one hand we can preserve and safeguard the industry, while at the same time looking at expanding and diversifying the economy and doing those two things at the same time. It’s not a question of either or; one supports the other. We need the ability to do both at the same time.”

Comments

Well_mudda_take_sic 3 years, 7 months ago

What a blow of hot air!

Had we opened our country up many years ago to talented and creative foreign lawyers with cutting-edge expertise in offshore financial services (as so many other much more successful offshore jurisdictions did), today we would have both a thriving financial services and complementary tourism based economy that would be the marvel and envy of the world. But the many dead beat greedy Bahamian lawyers like Moree were too afraid they would not be able to handle the competition, preferring instead to preserve their fiefdom even if it meant the eventual withering away of the very large financial services sector we once had. LMAO

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