The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank is preparing to increase the sum granted to local broker/dealers for investments outside the Bahamas by $10 million per annum as part of further exchange control liberalisation.

John Rolle, the Central Bank governor, also disclosed that planned reforms will double the ‘cap’ on direct investments overseas by Bahamian groups and individuals to $10 million and $2 million, respectively.

Unveiling the amendments at last week’s Grand Bahama Business Outlook conference, Mr Rolle said the total foreign currency sum granted to local broker/dealers for their Bahamian Depository Receipt (BDR) products would be increased from $25 million to $35 million per annum.

These BDR products are derivatives, typically structured as investment funds, and designed to provide Bahamian institutional and retail investors with access to international capital markets.

“Bahamians, whether directly or through institutional channels, can invest in international capital markets at the one-to-one exchange rate, using the Bahamian dollar depository receipts (BDR) market,” Mr Rolle said.

“The Central Bank makes an annual allocation equivalent to up to $25 million, or no more than 5 per cent, of the external reserves to fund these purchases.

“This programme has been in place since 2006, and is about to be enlarged to an annual cap of $35 million starting later this year. The National Insurance Board is accommodated through a separate annual arrangement.”

The $10 million annual increase should increase Bahamian access to higher-yielding investment opportunities worldwide. Given that the funds are distributed quarterly, the maximum three-month allocation to the Bahamian capital market will increase from $6.25 million to $8.75 million.

Mr Rolle, meanwhile, promised that further exchange control liberalisation would occur this year to assist Bahamians interested in investing in foreign-based businesses.

“The Government has also relaxed capital controls to allow Bahamians to make direct investments abroad, where it is assessed that the ventures can earn net foreign exchange for the country,” the Central Bank governor added.

“An investor group can have access to up to $5 million over any three-year period to establish a business outside the Bahamas, while in similar cases, a sole individual can access $1 million at the one-to-one rate.

“It is an outlet, particularly for professionals who might qualify to hold banking, trust and other international financial services licenses. In 2016, this investor group limit, per three-year interval, will be increased to $10 million. The sole individual limit will rise to $2 million.”

Mr Rolle was quick to warn, though, that there was “still no appetite” for full exchange control liberalisation, which would end the Bahamian dollar’s fixed, one:one peg to the US dollar.

He implied that the Bahamas was simply not ready for such a move, as it would need a stronger oversight framework and much higher level of external currency reserves to support it.

“There is still no appetite to invite unchecked flows across the border, affecting either capital markets or the local banking sector,” Mr Rolle said. “Such flows would have to be able to move outward as easily as they move inward.

“To accommodate them would require a more sophisticated regulatory framework to maintain stability within the financial sector, and much larger foreign reserve buffers for potentially large capital withdrawals.

“In terms of flexibility, it would also mean allowing the Bahamian dollar to float, as the ultimate regulator of the supply and demand for foreign exchange.”

Mr Rolle, in a nod to growing public concerns over the increasing fees that banks are levying on every conceivable transaction, said the Central Bank was committed to developing a consumer protection framework.

“As we progress towards a Credit Bureau, the focus rightly should also sharpen on consumer financial protection,” he acknowledged.

“This is not yet a well-defined or assigned responsibility within our financial system. However, the Central Bank is committed to developing framework proposals that the Government can consider. Best practices internationally are that these frameworks should promote financial protection in terms of transparency, fairness of credit practices and financial literacy.”

Mr Rolle added: “Countries have taken different approaches to oversight; sometimes through standalone agencies, but often also by placing the responsibility within existing regulators.

“The Central Bank will consider how to make recommendations over such a range of options, mindful that in the case of the Bahamas, the outcome has to be sensitive to the acute capacity constraints from creating too many separate regulatory agencies.”