The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas "must not become paralysed" by continuing financial services industry attrition, an ex-attorney general warned yesterday, urging it to instead rapidly "re-engineer" the sector.

Alfred Sears QC, pictured, acknowledged to Tribune Business that the exit of institutions such as Julius Baer, which this week announced its departure from the jurisdiction with the loss of 30 jobs, signals the "death knell" for The Bahamas' old financial services model.

But, "rather than hold on to what used to be", Mr Sears said the country must view such changes as an "opportunity" to reinvent itself by embracing the likes of Fintech (financial technology) and family offices, encouraging high net worth and corporate clients to domicile here, and boosting the financial services industry's links with the domestic economy.

He admitted, though, that The Bahamas has "been lacking in both" the innovation and creativity required to reposition its financial services sector in the face of regulatory and other fast-moving changes that are impacting the industry worldwide.

Mr Sears called on policymakers and the industry to become "more futuristic in terms of what we wish to be", and urged the creation of one "super-regulatory body" through the consolidation of all existing financial services supervisors to reduce associated costs while increasing efficiency and industry confidence.

"I believe that what we are witnessing is an attrition due to the combined negative processes of the Financial Action Task Force (FATF), European Union (EU) and Organisation for Economic Co-Operation and Development, both anti-money laundering and tax co-operation," he told Tribune Business of the seemingly constant shrinkage of the Bahamian financial services industry.

"It has made the jurisdiction, as a banking centre, increasingly non-competitive, which I believe is the intention of a lot of the external pressures. I believe they are motivated partly by regulatory concerns but primarily by protectionist concerns.

"I think we're going to continue to see a continued trend of attrition of offshore banking as we have known it. I think it is going to be the death knell of what we have been accustomed to, but there is an opportunity to reengineer."

The Bahamian financial services sector has endured a two-decade long contraction that has been slow, but steady, with the departure of multiple institutions - Julius Baer merely being the latest - continuing to whittle and chip away at its strength.

The result has been the loss of high-paying, lucrative jobs that have played a key role in establishing a Bahamian middle class, as well as the numerous spin-off benefits that have generated government taxes and incomes for multiple other sectors of the economy.

However, Mr Sears said the evolution of Fintech and other developments mean The Bahamas still has a chance to evolve its business model from one that has historically relied on tax avoidance and client anonymity to gain a competitive edge.

With that era long gone, he told Tribune Business: "We can't become paralysed by the attrition and not recognise the strategic opportunities that give us the chance to remake ourselves and become more competitive.

"This is where I think we need to be more futuristic in terms of what we wish to become rather than holding on to what used to be. It's an opportunity, but we're going to have to combine two things. One is the courage to defend ourselves, and two, is the exercise of creativity and innovation. Unfortunately we have been lacking in both.

"It's incumbent on The Bahamas to push back, and reconvene and reengineer the role it will play as a financial centre," Mr Sears continued. "It needs to focus more on family offices and other types of international facilitation and services to attract entities to set up headquarters and substantive operations in this jurisdiction, and arbitration also.

"I think we need to have a more sophisticated and married set of services. The banking secrecy-type arrangements we have to reengineer in terms of improving the competitiveness of the jurisdiction, and we need better integration between financial services and other domestic sectors of the economy.

"The family offices we can tie into the second homes, create multiple linkages with the domestic economy, and take advantage of our proximity to the US and easy connectivity to Europe and South America."

Mr Sears said The Bahamas still possesses the "critical mass" with which to restructure, given its legal and accounting professions, and base of existing private wealth managers and trust officers.

"We have the regulatory capacity, but it has to become more streamlined," he added. "Right now it's scattered across multiple bodies in the financial services sector. I think it should be collapsed into a super-regulatory body with different departments. That way you bring greater economies of scale, and regulatory confidence and efficiency."

The ex-attorney general argued that The Bahamas could also become a corporate restructuring hub by reforming the Companies Act and Insolvency Act, together with the latter's accompanying rules, plus a renewed focus on arbitration.

"Tied into that is Fintech," he added. "We're talking about the global economy where you have the mobility of money, and increasingly - because we're living in an information and technology revolution - that money is becoming digital and digitised.

"If we want to continue to be a facilitator in terms of global commerce and multi-jurisdictional transactions we need to have a digital platform so we are not limited by physical transactions within a small jurisdiction. This is where we need to have innovation, where we need to have creativity.

"We need to utilise the critical mass we have, and expand the expertise in this area. This is the critical time for leadership and innovative thought in our country."