The Bahamas: New Vistas For Financial Services Industry
By Jeremy Hetherington-Gore
12 March, 2003
May, 2002, saw the recapture of the Bahamas Government when the Progressive Liberal Party led by Perry Gladstone Christie ousted the incumbent Free National Movement after a 10-year reign, winning 32 seats out of 40 in the House of Assembly. Perry Christie, 58, became the third Prime Minister of the Commonwealth of The Bahamas.
Ministers in the new administration moved swiftly to review aspects of the controversial legislation put in place by the outgoing government.
"The Progressive Liberal Party government recognizes the need for The Bahamas to meet international standards", said deputy Finance Minister James Smith, a former central bank governor, on national television. But he said the government would review the laws to accommodate complaints from the country's offshore banking industry; businesses had said that complying with the new standards was costly, cumbersome and full of red tape. There had also been challenges to the constitutionality of the new laws, said Mr Smith.
Minister Smith outlined seven areas that he said are fundamental for the growth of the financial services sector, saying that the Bahamas should:
- accept that there will be no retreat from the need to adhere to basic international standards as regards transparency, exchange of information and KYC requirements in the conduct of both onshore and offshore financial services activities;
- determine, in advance, the likely impact of tax information exchange agreements with respect to both criminal and, later, civil matters; and what its "precise" response ought to be;
- ensure that its laws and practices are consistent with the threshold requirements of the World Trade Organisation (WTO) and the Free Trade Area of the Americas (FTAA), in the context of the principles regarding no-discrimination, most-favoured nation, national treatment and transparency issues;
- expand its capacity to provide technologically advanced services to its client base, consistent with modern methods and modalities. Specifically, it must move speedily to facilitate the development of e-commerce by providing the appropriate legislative regime; the necessary physical infrastructure and, above all, the educational and cultural impetus to transform the country to a digital economy;
- introduce a national programme to continuously upgrade its human resource pool by the expansion of formal, informal and on-the-job training facilities to ensure that its work force is competent to meet the challenges of international competition;
- "fast forward" the process for approving new products and services for use in its financial services sector, specifically special legislation requested by local financial service practitioners; and
- institutionalise the process of efficient and effective dialogue between the practitioners and the policy makers to ensure that they work in harmony towards the common good; that is, towards the orderly growth and development of its economy in general and its financial services sector in particular.
While acting to lessen the impact of the many new laws which had been hurriedly passed in 2000, during the months after the election, the new government strongly reasserted its belief in the Bahamas' future as a financial centre, creating a new Ministry of Financial Services and Investments under Minister Allyson Maynard Gibson, and establishing a Financial Services Consultative Forum with a mandate to advise the new Ministry and the Government on the development of the financial services sector.
Good news arrived for the new government in September, when the Bahamas Financial Services Board (BFSB) announced that the jurisdiction had been granted a six year term for its Qualified Jurisdiction (QJ) status by the United States. Prior to the execution of a heads of agreement between The Bahamas and the US of a TIEA, only a two year term for its QJ status had been granted by the US. The US had determined in January 2001 that 'Know Your Customer' rules in the Bahamas were implemented to an acceptable standard for the purposes of operating a Qualified Intermediary regime, and will allow financial institutions based in the jurisdiction to benefit from reduced reporting and documentation requirements.
Following the announcement, James Smith welcomed the news, explaining that the extended term of the status will increase the feeling of stability and certainty amongst financial service providers: 'It also sends a wider signal to the international community that the Internal Revenue Service regards the Know Your Customer requirements of The Bahamas as being on a par with international standards,' he noted.
More good news followed in October, when Moody's Investors Service announced that the outlook remained positive for the Bahamas 'due to a track record of prudent economic management that should enable the country to remain a competitive provider of tourism and financial services - despite the adverse effects of the September 11 terrorist attacks'.
In its annual report on the jurisdiction, entitled 'The Bahamas: Global Credit Research' the international ratings agency observed that: 'The Bahamas' high degree of economic integration with the United States - a strength in its own right - produced an economic shock following September 11 that was especially sharp.'
However, factors such as the jurisdiction's removal from both the FATF and the OECD blacklists, its relatively strong external position, and its stable and democratic political system all helped to ensure that the Bahamas retained the A3 foreign currency rating and positive outloook awarded to it by Moody's the previous September.
Shortly afterwards, the BFSB was able to announce that the jurisdiction's financial services regulators had signed a Memorandum of Understanding (MoU) intended to assist with the harmonisation of regulatory standards and practices. The agencies concerned were the Central Bank of the Bahamas, the Securities Commission, the Compliance Commission, the Office of the Registrar of Insurance Companies, and the Office of the Inspector of Financial and Coporate Service Providers.
Co-operation amongst the Insurance Commission, the Central Bank, the Securities Commission, the Compliance Commission and the Registrar General will be intensified, including the development of a common data-base for recording details of applicants and licensees, and the signing of the inter-institutional Memorandum of Understanding (mentioned above) on the harmonisation of procedures.
According to the BFSB: 'It is anticipated that the harmonisation of practices by the various regulatory agencies will minimise duplication in the supervision of financial institutions, and enhance regulatory efficiency.'
Rounding off a very active first year in office, Prime Minister Perry Christie announced in December the creation of two new commissions tasked with reviewing the country's tax regime in the light of future World Trade Organisation, Free Trade Area of the Americas, and CARICOM Single Market and Economy membership. Mr Christie told the 22-member Commission on Trade Liberalisation and Globalisation that: 'Your task will be to advise the Government on the administrative and institutional framework for the development of an effective response to globalisation and the trade liberalisation process.' The Office of the Bahamas Trade Commission, for its part 'is set to play a pivotal role in advising the government on trade liberalisation, globalisation, and related tax issues'.
Prospective memberships of the FTAA and WTO (both seen as preferable to CARICOM membership) raise the question of exchange controls, which are now seen as having only limited further life. 'The exchange control regime needs to be altered and eventually disbanded,' says Central Bank Governor Julian Francis. 'It is in place to protect the value of the Bahamian dollar - but with increasing pressure to open the economy and free movement of capital we would need to seek to reduce the incidence of exchange controls.'
Governor Francis points out that the Government approved a new round of relaxations for short-term transactions just last September. The regime has also been flexed to allow expatriate employees of foreign companies to make external pensions-related 'ESOP' style investments.
2003: The Government Sets Out Its Agenda
Then the Prime Minister began 2003 by reiterating his discontent with what he called the 'excessively bureaucratic nature of the jurisdiction's investment regime', and pledged changes. 'Hundreds of millions' of investment dollars, he said, were waiting to pour into the Bahamian economy, represented by pending applications before the Bahamas Investment Authority and the National Economic Council. 'Simply put,' said Mr Christie, 'the wheels of the government are still moving too slowly and inefficiently in this regard. We can ill afford to frustrate potential investors, particularly at a time like this.'
Since then the MFSI has announced there is now a 30-day turnaround on properly completed investment applications.
The BFSB also began the year on an active note, launching a new marketing initiative. SPIN, or Special Programe for Intermediaries in Nassau, forms part of the Board's 2003 drive to target international financial services intermediaries and advisers upon whom clients are increasingly relying to decide where to locate their assets.
The BFSB explained that: 'SPIN...is an outreach whereby individual international intermediaries travel to the Bahamas to meet with industry representatives, regulatory agencies and government officials to broaden their insights and understanding of the jurisdiction.'
Speaking with regard to the new initiative, BFSB CEO and Executive Director, Wendy Warren announced: 'We strongly believe that such information exchanges are vitally important to maintain confidence and support for our jurisdiction, and to reaffirm the strength of the Bahamas in some of our primary markets for business.'
During the early months of 2003, Minister of Financial Services and Investments, Allyson Maynard Gibson, began to set out details of the Bahamas' National Strategy For Financial Services, describing it as 'the outcome of extensive liaison with private sector and others with a stake in the financial services industry'.
'The Strategic Plan has 2 goals,' said the Minister: to create a sustainable blue chip well regulated and cooperative financial centre; and to expand and diversify the economy. Ms Gibson emphasises that: 'the Bahamas is a financial services centre, not an offshore financial centre, as some would describe us. The distinction is crucial.'
- The National Strategy for Financial Services includes a 10-point Action Plan:
- Create a productive public and private sector partnership.
- Replace red tape with red carpet.
- Identify and create opportunities for growth.
- Safeguard our internal environment and expand/upgrade our infrastructure.
- Develop expertise.
- Promote the jurisdiction.
- Build strong relationships with relevant international bodies.
- Facilitate integration in the industry.
- Develop linkages with tourism, investment, real estate and property development.
- Facilitate Bahamian participation in the industry.
The Minister also described a parallel National Strategy for Investments which will focus on hotel and resort development, time share projects, real estate initiatives, strategic economic expansion and incentives for Grand Bahama and the Family Islands and the encouragement of investment in local capital markets and international companies which benefit The Bahamas.
'As a service-based economy,' says the Minister, 'the Bahamas will succeed in its two primary sectors of tourism and financial services by recognizing, embracing and nurturing two simple operating principles in everything we do - providing value for money and providing top quality service. They are inter-dependent, not mutually exclusive principles.'
By April, 2003, the Minister was able to report considerable success in unblocking the investment pipeline, telling the nation that in less than a year the Government had considered and approved foreign direct investment projects with a projected capital investment of $727.4m, of which the majority had been submitted since the Government took office, and which would create nearly 2,000 new jobs. Proposed investments still in the pipeline amount to more than $2bn, and would create nearly 6,000 further jobs.
The approved investments, said the Minister, range from sizeable ventures, such as a $140m residential and golf course project on Abaco to smaller, boutique hotel facilities and a mini resort and conference centre. New projects have been approved for Abaco, Crooked Island, Exuma, Grand Bahama, Eleuthera, Bimini and New Providence.
'In addition to our tourism sector,' said Ms Maynard-Gibson, 'major emphasis has been placed upon transportation. In order to fill these new Bahamian and foreign owned ventures, your Government has approved investments which supplement movement to and between the Bahama Islands. Key among them is the Bahama-Florida Express, which is to provide fast ferry services between Nassau and Miami and Miami and Freeport and the Fiesta Mail, an inter-island mailboat with the capacity to carry 200 passengers and 12-40 foot cargo containers.'
Following sections describe the Bahamas' new legislative initiatives and its developing financial services sector in more depth.
The Bahamas' New Legislative Initiatives
The government's strategic planning and consultation during 2002 has led to a very substantial programme of new legislation, much of which is intended to be put in place during 2003, including:
- Introduce purpose trust legislation;
- Amend the Perpetuities Act;
- Introduce foundations legislation to encourage the formation of charitable trusts/entities;
- Amend the Mutual Funds Act & Regulations;
- Introduce Protected Cell Companies (Insurance and e-commerce will also benefit);
- Amend Securities Industry Act & Regulations;
- Amend the IBC act;
- Introduce an Electronic Communications and Transactions Act;
- Introduce a Computer Misuse Act;
- Introduce Data Protection (Privacy of Personal Information) legislation;
- Amend the domestic and external insurance acts;
- Amend the Financial Transactions Reporting Act, to streamline and simplify the paperwork requirements.
New legislation for telecommunications, e-commerce, wealth management and securitisation is described in subsequent sections, as are the changes to ameliorate some of the laws dating from 2000.
The Bahamas: 2000 Revisited
Although the legislation put in place during 2000 and 2001 to ensure the Bahamas' removal from OECD and FATF 'blacklists' was mostly unavoidable, and in many respects overdue, the financial services sector viewed it as 'overkill', and Perry Christie's government moved quickly to fulfil the PLP's campaign promise to reduce its impact.
The Prime Minister said the government would ensure that the Bahamas meets all of its international obligations, especially those which involve the participation of the country in the concerted international effort to combat the financing of crime and terrorism; but he said that he intended to review the Financial Transactions Reporting Act to determine if procedures can be simplified to streamline and eliminate any unnecessary bureaucracy.
One of the government's first actions indeed was to extend to December 31, 2002, the deadline set by the Financial Transactions Reporting Act for the identification of the owners of all accounts established prior to January 1, 2001.
"International and domestic financial services firms have committed tremendous effort and resources to this exercise," said the BFSB's Wendy Warren. "They indicated to government that whilst they were able to substantially complete the exercise, they were unable to meet the 30 June deadline'.
Minister Alysson Gibson made it clear that the government was very open to argument on the '2000' laws: 'The PLP Government when it came to office in May 2nd 2002, undertook to review generally those aspects of the financial legislation compendium passed in December 2000, with the aim of clarifying, simplifying and rationalising those elements which made the conduct of legitimate business unnecessarily complex, repetitious and frustrating. By far the greatest single inhibitor of legitimate business activity, both domestic and international, has been the rigid, overly prescriptive requirements for KYC documentation under the Regulations made pursuant to the FTRA.
"'The obligations under these regulations require financial institutions to obtain detailed documentation on their existing clients even though the money laundering risk of such accounts or facilities may be negligible. This has resulted in a significant expenditure of resources by financial institutions harassing long-standing well-known clients for pieces of evidence. This exercise has been applied to all facilities, even ones belonging to the young paperboy, grocery packing boy and pensioners. Clearly the opportunity for money laundering by these customers is virtually non-existent. Yet the same level of resources and efforts of exertion are applied to these groups as are applied to those higher-risk categories for money laundering.
'It is noteworthy that one of our international partners suggests that further time should be given to banks to allow further compliance with the provisions and that financial institutions should be encouraged to review their lists of outstanding accounts using a risk based approach in order not to devote excessive resources to small domestic accounts. Another partner suggests that the retrospective due diligence requirement should be reviewed with a threshold instituted for small accounts of pensioners who are well known to the bankers."
For bankers, and especially their lawyers, one of the most vexed aspects of the '2000' legislation is the extent to which it compromises banking secrecy, and the duty of confidentiality which lawyers and other professionals owe to their clients. Prominent jurists even said that the legislation conflicted with the Constitution, and welcomed a Court of Appeal ruling in October, 2002, setting aside a judgement of the Supreme Court under which the new legislation was protected from constitutional review.
The original application had been made by local lawyers complaining that the new laws inappropriately designated law firms as financial services institutions, for the purposes of regulation by the Financial Intelligence Unit (FIU). Maurice O. Glinton and Leandra Esfakis, joined by the Bahamas Bar Association, had claimed that to the extent that the legislation subjected "financial services providers" (including lawyers) to routine inspection of their offices and client lists, this placed the lawyer in direct conflict with his or her sworn duty to protect the clients confidentiality.
The Supreme Court had sympathised with the litigants, but felt bound by a previous case; the Court of Appeal disagreed, and insisted that the lawyers' application should be heard on its merits. In fact, Canadian and British precedents had already confirmed the lawyers' position, and the Court of Appeal had little choice but to agree.
Well-known local jurist, Dr Gilbert N M O Morris said: "It does not mean that there will be no money-laundering laws in these jurisdictions. What it does mean is that we shall have more intelligent laws, more amenable to our constitutions. It will also mean that our BAR Associations, Accounting Institutes, our Insurance Agencies and professional bodies will have to get into the game; putting resources into getting good research and remaining well-informed and educated on the cutting edge of these issues."
Also in line for revision was the IBC Act 2000, whose passing had been accompanied by a significant decrease in incorporation of IBCs with subsequent loss of revenue. Said Minister Alysson Gibson: "Like our sister the US and many other jurisdictions that use corporate vehicles similar to IBCs, we are committed to the use of IBCs and legitimate corporate vehicles. We expect that as our regulatory regime is streamlined and better understood by our international partners, incorporations and revenue will increase to its former levels." The Minister said the Act would be revisited to provide for a comprehensive fee schedule and to provide for companies struck off the Registrar for non-compliance to be restored where appropriate."
However, the Minister made it clear that the IBC Act itself is here to stay: 'IBCs, like companies incorporated under 1992 Companies Act are Bahamian legal entities. We do not intend to revoke the IBC Act. Dialogue with industry makes at least 2 things clear: (a) industry feels that there was not sufficient consultation with industry in 2000 when the 11 pieces of legislation were rushed through and (b) as a result there are many lacunas in the Act. These make it difficult, if not impossible for lawyers to advise with certainty. In this light, we do intend to review the Act."
In a speech to Parliament, Minister Gibson also made it clear that the proposed amendments in no way weakened the Bahamas' commitment to effective regulation:
'Very clearly, no serious financial centre and certainly not The Bahamas, whose credentials are well established and whose vintage is almost 60 years, could be taken seriously if it did not do as we have done i.e. make clear its condemnation of money laundering, terrorist financing or any other use of its system of launder proceeds of nefarious trade. These illicit activities undermine the foundation of the country's financial system and the world's banking system.
- We do not support drug trafficking.
- We do not support money laundering.
- We do not support terrorist financing'.
Ms Gibson's speech to Parliament also highlighted the importance of the banking sector to the Bahamas:
'An analysis of our Central Bank statistics for the year 2000 shows there were then over 4,000 Bahamians working in the banking industry, averaging a salary of over $62,000 per year (this includes the salaries of expatriates working in The Bahamas). The wage levels of this group of Bahamians is nearly 4 times the GDP per capita and a quick analysis tells us that this leads directly to 11,000 jobs. Also, it affects another 14,000 dependents, using the national average for dependents. Therefore, nearly 30,000 persons are affected by this class of persons; who altogether constitute a significant portion of the Bahamian middle class. On average the banking sector has contributed $15 million per year in government fees.'
Speaking in April, 2003, the Minister was able to report that confidence in the financial services sector had been restored:
'I meet regularly with the stakeholders in the sector. The good news is that there is no uncertaintly about our commitment to financial services, and there is optimism about the revival of the sector and its restoration to pre-eminence, especially when (the institutions) note the challenges that we faced last May in the world economy and in the domestic arena.
'They have given several reasons for this vote of confidence, including:
- access to decision makers and participation in decision making process;
- institutionalization of consultation with the private sector through the establishment of the Financial Services Consultative Forum; and
- participation in development and promotion of "The Bahamas brand"
'I noted and agree with the view recently expressed by a leading Bahamian private banker that private banking will continue to flourish in The Bahamas as we restructure the sector.'
The Bahamas: Managing Wealth
Although the legislative changes of 2000, and the adjustments currently being made to them, have reaffirmed a viable role for the Bahamas' banking sector, traditionally the strongest past of the country's financial services sector, international attention to money-laundering, terrorist financing and tax evasion means that offshore jurisdictions have had to develop more sophisticated services in order to maintain their competitive position, and the Bahamas is no exception.
Reviewing the course of 2002 in December, Michael Paton, Chairman of BFSB, emphasized this change, saying: 'The private wealth management sector of the financial services industry is in the middle of a significant transition period. The emphasis on private banking is now shifting to investment management, which generates significant fees for private banks. The new model of private banking includes a variety of structured banking products, which facilitates access to investment products hitherto unavailable to the majority of private banking clients. The Bahamas is well positioned as a domicile for these structured products and they represent an immediate opportunity for the jurisdiction.'
Michael Paton amplified this statement by explaining that recent trends in the private banking market namely volatility in the global equity markets, reduction in commission structures for direct trading and a reduction in net new money inflows have adversely impacted the financial results of private banks. In an effort to counter this it is imperative that private banks devise new revenue sources while meeting the portfolio management objectives of their increasingly sophisticated and demanding clients. One way to do this is to develop a portfolio management platform which includes structured products such as structured notes, fund of funds, participation certificates, total return swaps, performance-linked notes and credit-linked notes. These products allow the private bank to bring value added products to their clients and also generate significant new revenue sources for the private bank.
The Bahamas is well equipped to be a preferred jurisdiction for the issue of such structured products as its laws and regulatory environment facilitate this type of business very well. The new Investment Funds Act will further enhance the jurisdiction's position in this regard. The new SMART Fund will allow financial product specialists to design a regulated yet innovative product which is bespoke to their bank's needs. Meanwhile the Securities Industry Act enables the issuance of structured notes and similar securities by a Bahamian based issuer (usually an SPV) in a timely and efficient manner.
Mr Paton listed the key events in 2002 marking the development of the Bahamas as a mainstream international financial centre competing on level terms with OECD members to provide services to wealthy individuals from any part of the globe.
In particular, he drew attention to the signing of a Tax Information Exchange Agreement with the United States of America. 'This act of political expediency,' said Mr Paton, 'ensured The Bahamas maintained its Qualified Jurisdiction status for US withholding taxes, which is vital for the private wealth management sector of the financial services industry in The Bahamas.'
The BFSB Chairman also mentioned the country's conditional commitment to the OECD, issued in March, predicated of course on the famous 'level playing field' amongst all OECD and non-OECD countries. However, said Mr Paton, there were storms on the horizon, mentioning in particular the FTAA (Free Trade Area of the Americas), which would inevitably bring with it greater openness to competition from the US and other regional financial centres.
A longer term potential issue is the EU's Savings Tax Directive. The Bahamas is not explicitly mentioned in the list of non-EU territories to which EU Member States expect the Directive to apply, including the U.S. While there is a strong linkage between The Bahamas and the U.S., there seems little prospect that the U.S. will adopt such measures to please the EU.
Speaking in April, after EU Finance Ministers had failed again and again to recommend an agreed Directive to the Member States, Central Bank Governor Julian Francis said he could not envisage that the Bahamas would move away from wanting a level playing field among all parties - and would never be a party to any agreement that imposed information-sharing.
Meanwhile, 2003 will be a very active year for The Bahamas wealth management industry. The short term legislative agenda contemplates, inter alia, new investment funds legislation, foundation legislation, protected cell legislation and netting and set off legislation.
' The purpose of the proposed new legislation,' says Michael Paton, 'is to demonstrate that The Bahamas is an attractive jurisdiction for the domiciliation of investment structures and that Bahamian law provides certainty and clarity with respect to these structures'.
The Investment Funds Sector
The Investment Funds Bill is a major piece of legislation which creates a new licensing structure for funds, meaning that all Bahamas-based funds (those incorporated, administered or whose investment advisor or investment manager is located in the Bahamas) must be licensed or registered with the Securities Commission. Non-Bahamas based funds (funds having some other nexus to the Bahamas) must either appoint a representative registered with the Commission or notify the Commission of the relevant relationship.
The practical effect of this is that the "exempt fund" structure, which presently exists, will be no more; instead ALL funds operating in the jurisdiction will be 'regulated' or 'submitted' to the Commission in one way or another. However, the legislation seeks to achieve balance by establishing a series of classes of funds each subject to varying regulatory oversight based on its defined risks. These classes of funds are Standard, Authorized, Professional and SMART Funds.
The Act will provide the Commission with 'administrative sanctioning' powers allowing it to deal swiftly and effectively with breaches of the Act by both regulated and unregulated funds.
Minister Maynard-Gibson hastened to reassure fund operators that the new rules would not lead to an increase in red tape, as Investment Fund Administrators will continue to be empowered to license funds.
The SMART fund, or Specific Mandate Alternative Regulatory Test fund, is a flexible vehicle licensed and supervised by the Securities Commission with limited, defined participants and detailed business plan offering a fast track licensing and limited direct regulation. Wendy Warren said the advantages of the SMART fund include:
- The Bahamas SMART Fund gives the Securities Commission the unique opportunity to regulate a product that may be tailored to the specific needs of individual applicants.
- Administration is limited to practitioners already licensed by the Commission.
- A SMART Fund provides a credible licensed entity of more substance than an IBC but with the flexibility and recognition of a Mutual Fund.
- The SMART Fund provides a simple means by which Exempt funds may convert to a licensed entity whilst providing the Commission with a procedure to understand what these funds actually do.
- The SMART Fund will provide the business community locally (and perhaps internationally) with the opportunity to devise creative uses for a new Fund product.
- The promotion of an innovative new product will help reaffirm the Bahamas as the jurisdiction of choice for serious people with sophisticated asset planning needs.
The Bill clearly provides the framework for a disclosure based regulatory system for funds, the details of which are set out in the proposed regulations to the Act. Investor protection mechanisms have been clarified and strengthened by provisions requiring investment fund administrators to have real 'capital' and liability insurance coverage.
The Bahamas' Telecommunications And E-Commerce
A key step in the Bahamas' telecommunications privatisation process was the establishment of the Public Utilities Commission tasked with the regulation of the electricity, telecommunications and water sectors. The PUC's first task is to address the telecommunications sector. Speaking in January, PUC Executive Director George Moss recalled that in October 2002 the Government had launched the sale process for 49% of the state-owned Bahamas Telecommunications Company (BTC) with a view to completing the process later this year.
Mr Moss listed the benefits of privatization as the raising of revenues for the Public Treasury, increased efficiency of a state-owned enterprise, expanded investment by private sector financing, attraction of foreign investment, greater commercial orientation of the company, improved responsiveness to consumers, human resources development, and knowledge transfer to nationals.
Underlining the government's commitment to privatisation, Mrf Moss said: 'Most countries, including The Bahamas, accept that the opening of their telecommunications market to the private sector has dramatized the need for independent, well staffed and financed regulatory agencies. This conviction is confirmed by the extraordinary growth in the number of telecommunications regulatory agencies. I understand that there are now over 100 independent regulatory agencies worldwide compared with 12 in 1990. The trend is clear.'
Mr Moss noted that the PUC had taken seriously its duty to provide access to the telecommunications market by way of licensing and the lowering of barriers to market entry, pointing out that the PUC had reduced Internet service licence fees from $10,000 to $2,600; and paging and trunking licence fees from $5,000 to $1,300. He outlined the PUC's more significant objectives as:
- Ensuring that telecommunications services are satisfactory and the prices are reasonable;
- Promoting competition among providers of telecommunications services and protecting the interests of consumers; and
- Ensuring that efficient operators are able to finance their operations from reasonable prices.
'In March 2000,' said Mr Moss, 'there were only three (3) Internet service providers; now we have sixteen (16). The residential Internet service package that cost $100 per month in 2000 is now available for about $20, a decrease of 80%. Similarly, business packages have been reduced from $150 to $35, a decrease of 77%.'
With respect to international leased circuits using submarine cables, in March 2000 BTC was the only operator but Caribbean Crossing was licensed in April 2001, said the Minister. Since then, he pointed out, the price of a 64 kbps leased circuit had fallen from $3,010 per month to $1,062, a decrease of 65%. Similarly, the price of a 1.544 Mbps circuit had fallen from $29,400 to $10,500, a decrease of 64%. As for cellular service, the monthly access fee had been reduced from $45 in 2000 to the present price of $10 and airtime reduced from an average of 38¢/minute to 15¢/minute.
'The Telecommunications Sector Policy,' says Mr Moss, 'envisages a world-class telecommunications sector for The Bahamas. We see our job at the PUC as promoting a competitive business environment to make this happen. It is also accepted that top class telecommunications services are extremely important to the economic health and growth of our country. Therefore, The Bahamas can remain an attractive destination for businesses for only as long as it can compete with the rest of the world in the provision of high quality telecommunications service.'
Towards the end of 2002, the government launched an advertising campaign to find a strategic partner and manager for BTC, looking to sell a 49% stake in the company to the right partner, and to transfer management control.
According to the invitation to register interest in the privatisation of the Bahamian telecommunications sector, such a partner would: 'provide the technical and financial resources and management capabilities to enable the BTC to attain the highest levels of international and national competitiveness and performance in the telecommunications sector'.
Speaking following the publication of the invitation, Minister of State in the Ministry of Finance, the Hon. James Smith observed that a new and rejuvenated BTC would provide a solid base for e-commerce development within the jurisdiction. When bids closed in February, 2003, four bidders had entered the ring: the BahamaTel Consortium, Blue Telecommunications (Bahamas) Ltd, Cable & Wireless PLC, and Trans World TeleCom Bahamas Ltd.
Local analysts have estimated the telecommunications company's worth at between $251 million and $560 million. A strategic partner from the private sector will be able to provide capital development and technological guidance, and should allow the monopoly provider to increase its efficiency and the range of services offered, thereby boosting its earning power still further, says the government.
The government says that it will defer the liberalisation of fixed line and cellular services until after the privatisation process has been completed: BaTelCo's exclusive rights to provide cellular services will end 12 months after privatisation, while the fixed line monopoly will cease after 24 months.
During 2001 and 2002, successive governments had given legislative priority to tackling issues raised by the OECD and FATF initiatives, and to bringing the country into compliance with international standards. While there is still a substantial legislative agenda going into 2003, as detailed above, a high priority is now going to be given to enhancing the country's e-commerce regime. Three bills are expected to be passed soon which Bahamian Prime Minister Perry Christie says " are aimed at making The Bahamas a centre for excellence in e-commerce".
"The mobility of capital provides for unprecedented opportunities for global financial services," said the BFSB's Wendy Warren. "We believe the legislation is a big step forward in creating a contemporary and comfortable e-commerce environment for financial service providers in The Bahamas."
New Bahamian Minister of Financial Services and Investments, Allyson Maynard Gibson, outlined to Parliament in November the Government's intentions regarding e-commerce, and in February expanded on the jurisdiction's general e-commerce goals, and the legislation she plans to bring forward:
- To create the degree of legal certainty necessary to inspire confidence in on-line commercial activity, by according legal recognition to electronic contracts;
- To set out the duties and liability of e-commerce service providers and intermediaries;
- To create an offence arising out of unlawful interference with computers and computer systems;
- To create a framework consistent with international standards on privacy of personal information.
The Minister insisted that the economic health of The Bahamas will depend on how people, government and the business community embrace e-business. As she sees it, the purpose of E-Government will be to inform, engage, and empower the people, and is particularly relevant given the archipelagic nature of the country.
Ms Gibson emphasised that the necessary people resources must be available, saying that there was no point in pretending that all is well with education. There was an urgent need for a revamp the educational system to support e-commerce development, especially career development.
The three bills shortly to be presented to Parliament are:
The Electronic Communications and Transactions Bill
This Bill, says the Ministry of Finance, is vital to creating the environment for legal certainty necessary to instill confidence in online commercial activity, particularly global commercial activity.
The Bill sets out a series of functional equivalency provisions which enforce the basic principle that due legal recognition will be accorded to an electronic message, signature, writing and contract on the same basis as such features would be recognized in a paper based environment and that there would be no discrimination against a transaction solely because it was conducted via an electronic medium. It will also allow parties to use electronic devices to form, negotiate and conclude contracts and other legally binding agreements.
Exemptions will include disposition of property, testamentary dispositions, negotiable instruments, enduring powers of attorney and court documents.
The Bill will be technology neutral, recognizing that technologies will continue to evolve. And unlike other jurisdictions, the Bill does not prescribe the type or method to be used to generate an electronic contract, signature or method of authenticating the communication so long as the necessary attributes are met by electronic means.
As with similar enactments elsewhere the Bill identifies those attributes or technological features that will qualify to rank an activity carried out online as consistent in all material and legal respects as the equivalent paper based activity. The Bill does not mandate the use of electronic communications, but merely provides that the use of such a method to conduct transactions is legally acceptable and sets out the functional circumstances under which such communication will be legally recognized.
Additionally the Bill sets out the duties and the extent of liability of e-commerce service providers and similar intermediaries such as webhosts and Internet Service Providers.
The Bill calls for the establishment of an E-commerce Advisory Board, which will act as a consultation and advisory resource for the Minister. This is an important feature of all evolving information based societies, says the Ministry, which rely heavily on the advice of such bodies in formulating continuing national economic and social policy generated by developments in information and communications technology.
Finally to ensure the integrity of the .bs top level country code domain name for The Bahamas, the Bill empowers the Minister to make regulations establishing standards for registration under and the use of this domain name.
The Misuse of Computers Bill
This Bill creates a series of offences arising out of the unlawful interference with computers and computer systems. There are six different offenses, including hacking in all its guises, based on standards and guidelines that have been established by the European Council and the Organization for Economic and Co-operative Development (OECD) and which have been adopted by nearly 30 countries, primarily within the developed world. These offences do not currently exist in the penal framework of the Bahamas and are vitally important as a deterrent to wanton or negligent security breaches of computer systems. Recognising the critical nature of information systems and the catastrophic consequences breaches of such may have, as in the case of hacking or the release of viruses, penalties under the Bill are relatively severe.
Data Protection Bill
This Bill implements privacy principles established by the OECD under its guidelines that protect the privacy and transferred flows of personal data.
The Bill has particular importance in an age where information, especially personal information, which is so valuable, may be misused and abused. It is designed to afford the individual protection against unauthorized and unlawful use of information that has been collected and gathered on him.
Consistent with the OECD's principles on Privacy, the Bill requires that information should be obtained by fair and lawful means and used in a manner consistent with that for which it has been collected. The Bill enables individuals to require persons who collect and use data to abide by standards of confidentiality in respect of such data and to provide individuals with information kept on them upon request. Of particular importance to e-commerce is the prohibition against the transfer of data to jurisdictions with inadequate data protection laws in place except with the data subject's consent.
The Bill establishes an independent Office of Data Commissioner who has responsibility for enforcement of the data protection laws.
A transitional period has been provided for to allow collectors and users of data to make the necessary adjustments to their systems to enable them to respond to a request from a data subject. This transitional period is one year in the case of the private sector and five years in the case of the public sector.
New Minister of Financial Services and Investments Allyson Maynard Gibson has set a formidable program of goals for the development of e-government in the Bahamas, and in January, 2003, was able to report significant progress, with computerisation of the Companies Registry of the Registrar General's Department accomplished on time by the end of 2002.
'The ability for users to access information from remote locations over the Internet, using ordinary software', said the Minister, 'will significantly add to our competitive edge as a Financial Centre. I thank the Registrar General and his hard working team for their hard work in its accomplishment. I know that industry is very happy that we have achieved this goal and all involved have every reason to celebrate this significant milestone. I also thank Mr. Felix Stubbs and his team at IBM for their hard work on this project. The success and smooth operation of E-Government is essential to our efforts to promote The Bahamas as a center for E-Commerce'.
The newly-computerized Registry allows for a wide range of functions to be carried out electronically:
- Electronic submission of incorporation documents;
- Paperless procedure for incorporation;
- Comprehensive name edit: Uniqueness, name endings, embedded sensitive words, etc;
- Registry approval and filing initiates automated incorporation process;
- Payment via credit card or Payment on Account;
- Electronic receipt issued to Agent;
- Documents, electronic as well as paper, company particulars, payment history, etc. available for agent review via online Company Inquiry.
The Minister has set the automation of the Civil Registry as one of the primary targets for e-government, with the following goals:
- the capacity to streamline the existing period of recording deeds and documents from 3 - 6 months to 48 hours;
- access to the Department's AS/400 network to transact business;
- imaging (scanning of all documents) for the digitized databases;
- easy and reliable access by the public from remote computer terminals and from terminals at the Registry (customers will be able to view documents on the computer as opposed to microfilm equipment);
- easy maintenance and electronic linkage of the offices in Nassau and Freeport.
Intellectual Property Legislation
The package of Intellectual Property Legislation covers Geographical Indicators, Industrial Designs, Patents, Trade Markets and Integrated Circuits. In order to comply with international standards and the fight against piracy, the new legislation will be in compliance with the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) under The World Trade Organization (WTO).
A number of changes and improvements are being made to the regulatory structure and to enhance the business environment of the insurance sector:
An Insurance Commission is being established with operational autonomy equivalent to that of the Central Bank of The Bahamas and the Securities Commission.
New Domestic and External Insurance Acts are being enacted to replace the 1969 and 1983 Acts.
A new Pensions Bill will regulate the Pensions Fund.
Minister Allyson Maynard Gibson announced that her Ministry would develop and apply a risk-based approach to capital and solvency matters for Insurance companies and start on-site inspections of both Domestic and External Insurance Companies. Other promised improvements to customer service and the industry's profile include the recruitment of qualified technical staff, enhanced training programmes, more efficient processing of licence applications, the compilation and circulation of Annual and other Statistical Reports, and the development of a website for the Office of The Registrar.
The Bahamas International Stock Exchange
Alongside improvements to the investment fund sector, the government also aims to breathe new life into the Bahamas International Securities Exchange (BISX), which although privately owned is seen by government as having had overly ambitious plans which were too dependent on a flow of privatisations or debt issues which never transpired.
However, Minister of State for Finance, Senator James Smith, remains optimistic over the exchange's future, and believes that the exchange is a vital feature of the nation's economy. The government is looking at ways to create a sustainable capital market where shares can be traded, advised by a team of financial experts chaired by Central Bank Governor Julian Francis. Currently, there are 18 companies listed on the exchange with a capital of around $1.4 billion.
Suggestions for the future of BISX include a more 'broker driven' system of trading, especially when the government issues bonds and treasury bills to the public and when offering shares in newly privatised companies, such as BaTelCo, and the relaxation of controls so that foreign investment instruments could be traded, as well as closer ties with international institutions such as the New York and London stock exchanges.
Some similar exchanges have successfully specialised in 'SPVs' (Special Purpose Financing Vehicles) and these may also form a part of BISX's future as the country moves in the direction of encouraging more sophisticated investment services.
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