The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE IMF is premature in its conclusion that the Bahamas has “managed” the financial sector’s contraction well, a senior attorney warning of further job losses and consolidation to come.

Michael Paton, a former Bahamas Financial Services Board (BFSB) chairman, told Tribune Business that “by no stretch” have the global regulatory and industry trends impacting this nation come to an end.

The Lennox Paton attorney and partner said both still had “a long way to go”, pointing out that the Bahamas had yet to see the impact from implementing the Common Reporting Standard (CRS) on automatic tax information exchange and further upgrades to its anti-money laundering counter-terror financing regimes.

Mr Paton said Bahamas-based institutions were informing him that while client numbers were reducing, assets under management were increasing, indicating that volumes are down but margins/yields up.

Warning that a drop in client numbers might result in further sector downsizing, he reiterated that the Bahamas needed to position itself as “the Singapore or Hong Kong” of the Western Hemisphere when it came to private wealth management.

The International Monetary Fund (IMF), in a paper accompanying its full Article IV report on the Bahamas, suggested that the financial services sector’s economic impact had “remained broadly stable” despite a 65 per cent contraction in bank and trust company assets under management in the five years to 2016.

This, the Fund added, suggested that the Bahamas had coped well in minimising the ‘spillover’ effects from such a reduction, but Mr Paton said: “I think we still have to reserve comment on that because I don’t think we can say the consolidation, the shake-out is over.

“The impact of the CRS and its Multilateral Convention, and its implementation, is yet to be seen. I would say there’s going to further consolidation in the sector. On the positive side, the reports I’m getting from some of the people in the industry that I speak to are that, notwithstanding the number of clients is shrinking, the aggregate of their assets may be going up because they’re dealing with high-end, complex structures.

“It shows a reduction in volumes but an increase in assets from what I’m hearing; assets in the structures they’re [financial institutions in the Bahamas] administering.”

Despite the seemingly positive increase in assets, Mr Paton warned that a reduction in client numbers could translate into further downsizing in the traditional ‘second pillar’ of the Bahamian economy, which has largely been responsible for building a middle class.

“The question becomes that, if there are less clients, what does that do to headcount in back and middle offices,” he queried to Tribune Business. “I suspect there are still going to be personal reductions, and what options are there going to be for persons affected?

“We may be managing the process better than others, but it’s too early to say yet, as this process has not finished.”

Mr Paton urged the Bahamas to look ahead “to the next stage and position ourselves as a serious place for private clients from a wealth management standpoint.

“The number of jurisdictions we are looking to compete with are going to be at the high-end of the market, rather than the low end. We need to be positioning ourselves as the alternative in this hemisphere; as a Hong Kong and Singapore type of marketplace.”

The ex-BFSB chair said the Bahamas needed to reverse any negative perceptions of itself to achieve such status, and reiterated: “I don’t think I can agree that we’ve come out of this thing.

“I think there’s still a long way to go. A lot of attention is being paid to the FATF and regulations associated with that; it’s still going to be changing times for us.

“I don’t think by any stretch have things settled down for us yet. Expect more rules and whatever enforcement of those regulations is necessary going forward. It’s a place we need to get to. It’s going to cause some industry ramifications, but that’s what we need to do.”