Bahamas: Law of Offshore
The Bahamian banking is regulated by the Central Bank of the Bahamas under the Banks and Trust Companies Regulation Act 1965. Banking licenses are restricted or unrestricted (public); restricted licenses permit banking services to be provided only to a named list of clients which cannot be changed without approval. Restricted licenses are suited to group treasury operations.
The Central Bank prefers that applications for unrestricted banking licenses should come from reputable financial institutions; if this is not the case then the Central Bank requires ownership to be spread among five or more independent shareholders, and will examine antecedents and net worth very carefully.
The application process demands extensive information, and includes an interview at the Central Bank, a 5-year business plan including pro-forma financial statements, and a description of proposed operational control structures. Once licensed, full financial statements must be filed annually. See Offshore Legal and Tax Regimes for details of registration fees payable.
The minimum paid-up capital required for a public bank is USD2m, and capital must keep pace with growth of the business, at a minimum 5% of assets, or 8% of risk assets. No more than 15% of total assets may be loaned to or invested in any one business or group. Minimum paid-up capital for a restricted-license bank is USD100,000.
A foreign bank can operate either as a branch or through a subsidiary. The licensing process is the same in both cases. A subsidiary will have to be a Companies Act company (see Forms of Company) rather than an International Business Company (they are not permitted to engage in banking services), which is not ideal. It is quite normal for the Bahamian operations of foreign banks to be managed by local professional firms, thus avoiding local business licensing requirements (a banking license is still required).
Banking licenses specify the exchange control status of the bank concerned: a resident license means that the bank can operate freely in Bahamian dollars, but will need to pay a premium to buy other currencies; a non-resident license means that the bank is free to operate in foreign currencies, but requires permission for Bahamian dollar transactions. As part of the Bahamas' response to its inclusion in June 2000 on the FATF list of 15 jurisdictions having inadequate defences against money laundering, the Bahamas amended its Bank and Trust Company Regulations to require all licensees to be physically present in the Bahamas. Companies are to maintain their banking records locally, and pre-existing offshore companies were required to conform to these regulations within 3 years.
The Central Bank of The Bahamas Act 2000, which is now in force, provides for improved supervision, including an appropriate level of on-site inspection of banks, full cooperation on cross-border supervision of banks, and enhanced cooperation between the Central Bank and overseas regulatory authorities. The new Act also provides extensive information gathering powers for the Central Bank.
Similarly, The Banks and Trust Companies Regulation Act 2000 enhances the role of the Central Bank Governor; expands the licensing criteria for banks and trust companies; provides enhanced supervisory powers for the Inspector of Banks and Trust Companies; provides for cross-border supervision by foreign regulators; and increases the number of expressed exceptions to the statutory duty of bank confidentiality.