The Bahamas is in the process of overhauling key legislation regarding the operations of its central bank and companies in the financial industry, aiming to increase efficiency in the banking sector and meet international standards of governance and transparency.
The financial sector is a major contributor to the economy, accounting for between 15% and 20% of GDP and providing employment to more than 4600 locals, according to figures released by the central bank in late July.
However, the global economic crisis and growing competition in the offshore banking sector has seen the Bahamas lose some of its gloss as a financial centre. Last year, there was a 9.1% drop in the number of active funds under management, with total assets falling by just under 30%, representing a decline of $80bn.
Then, in April 2009 the Bahamas was included on the OECD's "grey list" of countries that had not committed to international standards for exchanging tax information. Though it soon addressed this issue, the Bahamas has seen it needs to do more to reinforce its status and reputation as an offshore financial centre.
The latest step in this programme came in late July, when the parliament began debating amendments to two pieces of legislation, the Central Bank of the Bahamas Act and the related Bank and Trust Companies Regulation Act.
According to the minister of state for finance, Zhivargo Laing, the amendments to the legislation will clarify language in the existing acts, modernise the regulations and bring them up to international standards while addressing discrepancies that exist in the present law. If the Bahamas wants to bolster its position as an international business centre, the legislative and regulatory frameworks will need to be fully developed, he said.
"Our banking and trust sectors will be key elements of that thrust," Laing said on July 21. "This will be a place where private wealth managers and private wealth clients see themselves coming because the delivery of services and the variety of products and services are consistent with their needs in a more transparent and more competitive global environment."
Among the amendments included in the new legislation is the provision for the central bank to appoint a temporary manager to take over a licensed bank or trust company if it is being operated in a manner deemed to be detrimental to the public interest.
The amendments will also include removal of the requirements that licensees obtain prior approval from the governor of the central bank before issuing certificates of deposit, and that a licensee must obtain prior approval of the central bank for the appointment of an external auditor. Importantly, as part of the process of increasing transparency in the financial industry, the updated legislation will expand the rights of auditors to access certain information belonging to a licensee.
The amendments include establishing a bank clearing system that regulates and oversees payment and securities settlement systems, including electronic money, which the minister said would safeguard the efficient transmission of money through these systems, mitigating potential risks and promoting a sound national payments system.
In the main, the planned changes to the legislation governing the central bank have received backing from both sides of the political spectrum, though some opposition deputies have said the amendments do not go far enough in overhauling both the role of the reserve and in preparing the country's financial sector for the rapidly changing global economy.
One proposed amendment that has met with some opposition is the plan to allow central bank directors to own up to 5% of capital shares at any institution regulated by the bank, changing the present requirement forbidding directors from having a state in financial institutions regulated by the reserve.
Frank Smith, a member of parliament representing St. Thomas More, warned that the amendment dealing with financial holdings could create a perceived conflict of interest.
"None of the board members should have any stakes in financial institutions," he said. "They have to come with clean hands."
Another voice calling the government to do more to strengthen the banking sector was Philip Davis, the opposition representative for the seat of Cat Island, Rum Cay and San Salvador. Davis said further steps needed to be taken to ensure the banking and securities sector did not lose more ground.
"If our financial services industry fails, we will all be affected," Davis told the parliament on July 21. "The need to act and do all necessary to attract deposits, and top-notch bona fide and legitimate clients is now. The world and our competitors will not wait on the Bahamas. It's a rat race!"
A fiercely competitive space the global financial industry may be, but by working to bring its banking and business regulatory and oversight laws into line with international standards, the Bahamas is moving to keep ahead of the pack.