The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas will face “further threats” to its financial services industry that may demand a complete overhaul of the sector’s traditional business model, the FNM’s finance spokesman said yesterday.

K. Peter Turnquest, the Opposition’s newly-elected deputy leader, said Royal Bank of Canada’s (RBC) recent decision to exit the private wealth management business in the Bahamas and wider Caribbean was likely “the beginning of the realignment” facing the industry.

Emphasising that “the whole landscape of international financial services is changing”, Mr Turnquest said ever-increasing global demands for transparency and tax information exchange were driving the Bahamas further and further away from its longstanding model - client anonymity, and tax avoidance/minimisation.

Calling on the Government to reassess the industry’s fee structure to ensure it remains cost competitive, Mr Turnquest suggested the Bahamas and other international financial services centres (IFCs) needed to join forces and ‘draw a line in the sand’ in terms of how far they will go in complying with global regulatory initiatives.

And, on the commercial banking side, he said some institutions had effectively been ‘authors of their own misfortune’ through “loose” credit policies pre-recession - thus exacerbating their high non-performing loan levels and associated multi-million dollar provisions.

“I believe this is only the beginning of the realignment of the industry,” Mr Turnquest told Tribune Business of RBC’s private wealth move, “when faced with increased reporting via FATCA, and all the inter-governmental exchanges of information.

“The whole landscape of international financial services is changing. When you add into that the increased cost of business, with all the fee increases of the last few years, it’s becoming very competitive.”

He added: “I think it’s unfortunate, and I don’t know if I should say this, but we’re going to find there’s going to be some further threats to the industry that we’re going to have to find creative ways to mitigate.

“That includes looking at the fee structure to ensure it remains competitive, and finding ways to develop and attract new products that are innovative and not overly sensitive to global fluctuations.”

The Government and Bahamas Financial Services Board (BFSB) are likely to argue they have already done exactly as Mr Turnquest is suggesting, via the Executive Entity and newly-launched Investment Condominium (ICON) products.

Many also believe the industry has been in a constant state of evolution since the aftermath of the 2000 ‘blacklisting’ and subsequent government response, shedding the ‘old’ business model that emphasised client secrecy and tax minimisation/avoidance.

The remaining international institutions are widely regarded as ‘blue chip’, with a focus on attracting legitimate clients who are fully compliant with home country tax laws.

Yet, due to the fact most banks and trust companies are foreign owned, the Bahamas’ financial services industry has always been vulnerable to global head office decisions and international regulatory/economic swings.

This is why the BFSB spends much of its time seeking to influence head office opinions of the Bahamas, yet in RBC’s case, it appears Toronto has decided on a global strategic overhaul that is not primarily driven by factors on the ground here.

“It should be very concerning to all of us that RBC has taken the position it has, on the back of Bank of the Bahamas and the growing loan arrears situation we have,” Mr Turnquest told Tribune Business. “I think it says a lot.......

“It [the RBC exit decision] says we are very vulnerable. We have always known this, and have done very little about preparing the industry to weather this kind of situation.”

Mr Turnquest also suggested that the Ministry of Financial Services was “failing to produce the kind of results expected” given the level of resources, and faith, placed in it.

With developed nations increasingly targeting assets they believe their citizens have hidden ‘offshore’, the new FNM deputy added: “There will be more and more pressure on IFCs to become more transparent and disclose accounts they think should be taxed back in their home jurisdiction.

“This is going to lead to more pressure. Unless we can find a formula where all IFCs stand together and say: ‘To here, and no further’, this will continue.

“We have to be aggressive in finding new products and types of offshore business. It may be that we will not have the traditional business model within two years.

“These are things we have to pay attention to, and think about. We must recognise the threat, and come with strategies to ensure we ride over and ride through whatever hard times are coming.”

Mr Turnquest did not identify specific products and services he felt the Bahamas should develop.

However, there is little doubt that this nation’s international financial services sector will continue to face a series of regulatory and competitive challenges moving forward.

Many observers believe the sector has been slowly ‘slip sliding’ away, and contracting, with growth hard to come by, ever since the 2000 ‘blacklisting’.

Often referred to as the economy’s ‘second pillar’, financial services has played a vital role in making the Bahamas what it is today.

It is widely viewed as the sector responsible for creating the best-paying professional jobs, and building a Bahamian ‘middle class’. All this is now under pressure.

Mr Turnquest, meanwhile, suggested that several Bahamas-based commercial banks were responsible for their own misfortune when it came to their bad loans and reduced profits.

“For any number of years, we’ve given lip service to the way banks operate in this country,” he told Tribune Business. “In some ways, they are contributing to the problems we have.

“There’s only so much we have to give, whether it’s the loose credit, the rate of interest and the spread. Over many years they’ve helped to create the problems we have.

“Be that as it may, it does not negate the situation and problem we have. We have to look very carefully to answers, and how we manage ourselves out of this situation given high unemployment levels and a stagnant economy.”