Expressing the following sentiment to the attendees of the annual Global Fall Workshop on International Financial Services Regulations, Dr. Gilbert Morris of The Landfall Centre said the financial services sector must be prepared to become educated and obliged to defend itself by the subtlest means possible.
“There is no longer any room for ‘passive’ financial services provision,” he said. “We will not have essential control of international banking in The Bahamas until funds attracted to the Bahamas are attracted here to be invested in Bahamian capital projects and financial instruments… and Bahamians are given bank licenses.”
Speaking on the future of Private Banking in The Bahamas, Dr. Morris said The Bahamas should secure private banking because it provides immediate access to wealthy people while conducting an open market for international and domestic financial products. This he said is the basic training ground for the development of a skilled sector workforce as it rolls over into areas such as global custody, trust administration and mutual fund. Private banking he said is also consistent with our constitution.
Describing Private Banking as the most prestigious sector of the financial services, Dr. Morris said the major advantages for The Bahamas in this industry is due to the fact that there are no taxes, has English Law, constitutional privacy is enforced, has a stable Government, has competent staffing, has an ease of access, has close proximity to the US and has earned a tradition for quality banking.
Dr. Morris said in order for The Bahamas to continue as a model of private banking, it must choose to engage in full service private banking that invests in US Securities; enforcement of Tax Information Exchange Agreement (TIEA); OAS agreement on terrorist financing; the Patriot Act – which prevents US securities dealers from dealing with ‘shell banks’ or correspondent accounts from Offshore Financial Centres (OFC); the Sarbanes-Oxley Act, an act whose purpose is still unclear if IBCs of US clients in OFC will be regarded as US companies and IMF assessment programme.
The latter Dr. Morris said, was once opposed by the Financial Action Task Force’s (FATF) objectives on money laundering. Nevertheless, he said the FATF lobbied the IMF and won the concession that the IMF will use its 40 recommendations as the baseline for determining the health of a financial system whether or not it is a tax heaven or financial services centre.
“A full service private bank investing in the US that is also located in The Bahamas must answer to its home centre,” Dr. Morris said. “Therefore, even if the government of The Bahamas opts to defend private banking, they may come under severe pressure at home, particularly in OECD countries.”
The key to defending this area, Dr. Morris said is to allow court-ordered information exchanges only and to limit the information gathered under any KYC rule to the compliance offers of relevant banks.
Concerning the re-forming and re-drafting of existing legislation which support private banking, Dr. Morris said firstly, there must be an examining of the international landscape to determine the regulatory structure and the interest in them.
Secondly, examine the competitive market and design a number of core areas, develop a cooperative institution in tandem with other international financial centres to anticipate and counter-act new challenges.
Thirdly, he said to identify a series of products which fit into the regulatory framework and offer competitive advantages based upon comparative advantages while forming a compliance and inspection regime based on cooperation rather than policing.
“It may appear that defending private banking is too onerous,” he said. “However, I believe it is possible to make an honourable defense. It will be essential to decide on constitutional privacy, LLP and court ordered information exchange, against a background of clear, toothy regulations. Moreover, the collateral benefits from private banking cannot be gained in another enterprise available in The Bahamas.”
He said that in order to secure market share and increase product base, the country requires a new probate law to have advantage of the taxes in a variety of jurisdictions including the United States.
A major reason for hosting the one-day workshop Dr. Morris said, was concern that
The Bahamas was not getting full information on what was going on with US regulatory agencies, especially due to the fact, that there was an extensive attempt to stream-line the regulations between the various agencies.
He said FinCen,(Financial Crimes Enforcement), the SEC (Securities Exchange Commission),etc. have had marathon meetings in an attempt to steam-line the financial services regulation, particularly as it relates to the Patriot Act and QI (Qualified Intermediate Rules).
Because of this, he said there was a need to inform membership and to let them know of the opportunity available to make the country’s issues known while the process is going on.
“It means that our colleagues in the financial services sector in American begin to see us as allies and can help bring pressure to bear on regulatory agencies,” he said. “And also the agencies themselves are very much concerned to see that they get some feedback on what we are experiencing in this jurisdiction.”
Dr. Morris said upon consulting with them, it was discovered that they were very excited and agreed to send people down to talk about what they were doing and to find out what the nation was doing.
It was at this time, Dr. Morris said that the members were able to ask some very pertinent questions such as if a Qualified Intermediary (QI) bank which is qualified under the IRS rules to operate because of its KYC (Know Your Customer) rules, can act and participate in the US financial system base.
According to Dr. Morris, to be a QI you have to be in a qualified jurisdiction. The Bahamas he said, is a qualified jurisdiction as many of its banks are qualified intermediaries offering services between offshore clients in this region and banks in the United States.
“We are saying that if we qualify on those grounds, why can’t we have access to the US financial systems through broker dealers and to be in compliance with the Patriot Act,” he said, “this means that if you are a QI, compliant with the IRS’s interest, do you also have to be in compliance with the Patriot Act. Can that be seen as one thing do we have to be in compliance with other things.”
“We are trying to get around this and nobody in the US can answer us on this. So the people who wrote the regulations could not answer this question and that is whether QI’s will satisfy all the questions related to financial services compliance for the Patriot Act.”
Dr. Morris further stated that it is the view of the Landfall Centre that they will do the analysis and demonstrate the reasons why QI’s should qualify.
“So we are not waiting for them to come up with some solutions that may be disadvantageous to us, while they are in this process where the sands are shifting,” he said “we figure that we can get in on this and produce an analysis that helps our cause and that is what the Landfall Centre is all about.”
“It about using research, using intelligence to turn uncertain situations to the advantage of our membership.”
Established about a month ago, the organisation has websites containing every piece of legislation and regulation in the financial services sector.
Dr. Morris informed that the organisation will also provide on-line courses on money-laundering and various areas of compliance regulations that people can take. They will conduct at least three similar workshops a year where they can bring in experts from US regulatory agents to inform the country of what is on the agenda for the future.
“Financial services professionals in The Bahamas, are right on the cutting edge of the most advanced thinking in this area and but not merely to receive….but to give influence and get our point of view across,” he said.
By Lisa Albury, The Nassau Guardian
