The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

While the Bahamas is unlikely to suffer “major dislocation” in its financial services sector over the next two years, a top QC believes further attrition is likely, and warned: “This is an industry we simply cannot go to sleep on.”

Brian Moree QC, speaking to Tribune Business in the wake of UBS (Bahamas) decision to close its private banking business, said virtually all financial institutions were reviewing their business models and strategies to ensure they were sustainable in the current operating environment.

Apart from having to deal with prevailing market conditions, financial services providers - both within the Bahamas and outside - are also contending with the constant stream of regulatory initiatives stemming from the G-7/G-20.

Given this backdrop, and with European and Organisation for Economic Co-Operation Development (OECD) nations looking to follow the US down a FATCA-style automatic tax information exchange route, Mr Moree suggested it was inevitable that “there is going to be some consolidation within different regions by the multinational players”.

“Institutions are reviewing their business models to figure out sustainable ways of doing business going forward,” the senior McKinney, Bancroft & Hughes partner told Tribune Business.

“In that sense, it’s not entirely surprising that we in the Bahamas will have some attrition in the industry as part of this rationalisation by large institutions looking to adjust their business model to accommodate this new landscape for offshore business.”

Tribune Business understands that the number of Bahamas-based financial institutions currently engaged in business model and strategic reviews has reached heights not seen before.

Mr Moree suggested that the UBS (Bahamas) move was part of this process, especially since it was remaining in this nation and looking to expand other parts of its business - particularly its trust, private wealth management and funds administration units.

“We’re all very sorry to see UBS closing its private banking business, because it’s one of the larger players here and a major international institution,” the top QC added.

“It is interesting they have elected to keep their trust business, their private client business, which perhaps indicates where they think present business growth opportunities lie given the prevalent environment they are conducting business in.”

As to the Bahamian financial services industry’s mid-term future, Mr Moree told Tribune Business: “I myself would not expect a major downsize of banks and trust companies in the next 24 months, but there could be further rationalisation that results in downsizing of institutions and some banks leaving the jurisdiction, which will affect the jobs.

“I don’t expect major dislocation in that area, but many institutions are engaged in strategic thinking about their business model and what is sustainable in offshore business as a result of the new financial landscape, which is literally changing every year.”

Tribune Business understands that less than half of the more than 70 staff currently employed by UBS (Bahamas) private banking unit could ultimately be made redundant, and the final number might be less than that as the Swiss banking giant works to keep as many employed elsewhere in its business,

Speculation as to the reasons for UBS’s move was rife last week, with some observers linking it to the relatively high cost of doing business in the Bahamas, and its failure to position this nation as a Latin American private banking hub, while others questioned whether the bank’s issues with the US Department of Justice over allegedly facilitating tax evasion by Americans acted as a factor.

Regardless, Mr Moree said the UBS (Bahamas) episode illustrated why this nation needed to remain alert at both the jurisdictional, as well as the institutional level, given how rapidly the financial services climate was evolving.

The Bahamas, just like its institutions, had to assess its own business models and “make strategic decisions as top where it sees these issues going in the next 12-36 months”.

“This is an industry which we simply cannot go to sleep on,” Mr Moree told Tribune Business. “This industry is so incredibly dynamic at the moment, that we have to be fully engaged to adjust to the changing circumstances that are happening.

“This is not an industry we can look at today, make some decisions today, and come back in a year, or two-three years’ time. We need to be super-engaged in all of the issues, and sufficiently agile to adjust the business model and plan to take advantage of what the industry and market are demanding at any point in time.

“We need to make decisions quickly, be innovative in product development, and offer the highest level of client service.”

Mr Moree said the Ministry of Financial Services was ideally placed to remain on top of such issues, and warned that the Bahamas had to ensure it always remained on a “level playing field”- not getting too far ahead of its rivals on regulatory compliance.

And, reiterating just how vital the sector was to the Bahamian economy and society, Mr Moree said its salary levels - regarded as the highest in the nation - had done more than any other industry to grow the middle class.

“It’s a very challenging and difficult time in the financial services industry,” he told Tribune Business.

“It requires major focus and to be fully engaged, and we have to be flexible to adjust to market demands quickly. We have to ensure we don’t make sudden changes which prove to be a competitive disadvantage. We need to move in lock step with the competition.”