Likening bank compliance officers to "the Bahamian Gestapo", a local accountant has argued that overzealous regulation is continuing to drive banking business out of this country.
While stating that he cannot directly link the departure of UBS (Bahamas) from private banking in The Bahamas to what he believes to be heavy-handed regulation, Phillip Galanis said it is without a doubt that financial institutions "feel cramped" by the level of regulatory scrutiny.
Galanis, managing partner of chartered accountancy firm HLB Galanis and Co., argued that The Bahamas must take a "common sense approach" to regulation, that does not "cut off its nose to spite its face".
His comments come days after UBS (Bahamas) announced that over the next ten months it will close down its private banking unit in this country.
Gabriel Castello, head of UBS' Latin American and Caribbean markets, said that the company will continue to operate in The Bahamas, but no longer considers this country a banking center.
While the move was linked by some observers, including Minister of Financial Services Ryan Pinder, to blows to the major offshore institution globally in recent years, the pull out of the company from private banking in this nation is widely considered as a significant injury to the reputation of the country as a place to conduct offshore financial services.
Speaking about challenges to the viability of the financial services sector more broadly, Galanis said that he is very concerned about the role of regulators in creating what he described as a difficult environment to do business in The Bahamas, and how this may factor into decisions by offshore banks such as UBS.
He suggested that this country could take a less stringent approach without leaving itself open to negative feedback from international entities such as the Organization for Economic Cooperation and Development (OECD), which is driving the push for greater regulation of offshore finance globally.
And in a column written for The Nassau Guardian, he drew attention to what he termed "insane regulation" regulation" that caused "tremendous damage" to the offshore financial sector in this country.
"There are some regulators in various institutions that overregulate, which has the effect of presenting The Bahamas as not being business friendly. Bank compliance officers are the new Bahamian Gestapo, and really the situation has evolved now where the tail wags the dog and the compliance officers run the bank, not the managers.
"For foreigners, they are regulated in other jurisdictions, they make an application for accounts at some of the offshore banks and they are met with tremendous resistance from compliance officers who are overzealous regulators. It has the effect of discouraging persons from doing business here, and it creates an excuse for people when they leave," said Galanis.
Giving an example, Galanis said he was aware of a case involving an institution which was subject to an inspection which saw half as many examiners enter the bank as there were employees in the bank.
"It cannot possibly be efficient for them to have that many regulators. I think it really highlights and accentuates the nonsense that goes on in this jurisdiction sometimes," he said.
Asked if in his opinion the heavy-handed regulation began under the administration of Dave Smith at the Securities Commission, Galanis said that there was "no question" that a "tremendous amount of overzealousness was witnessed" during the time he was in charge.
"Virtually everyone in the financial services sector has complaints about difficulties they've encountered... The current executive director (Hillary Deveaux) has a common sense, practical business savvy approach to doing business. He's good for the jurisdiction."
However, he added that he feels the "genesis of the extreme overregulation" began under the second Hubert Ingraham administration, when a compendium of legislation was passed to get The Bahamas off the OECD's blacklist of offshore jurisdictions.
Adding that he felt The Bahamas "threw the baby out with the bathwater" when it comes to regulation, Galanis said the sector is still feeling the reverberations from those legislative actions.
As to whether he sees the need for legislative amendments to tone down the stringency of regulations if the offshore sector is to continue to be competitive, Galanis said: "I'm not sure if the legislation has to be amended, but training has to be given to regulators for them to understand the objective you are trying to achieve and how can it be done in a more efficient manner."
His comments come as the International Monetary Fund, in its latest report on the Bahamian economy and financial system released on Friday, said that the "disproportionately large" offshore financial sector in The Bahamas contributes some three per cent to GDP.
The Fund suggested that going forward, the offshore financial sector could benefit in this country from "concerns of heightened financial sector risks" in some advanced economies.
Galanis said he too sees an opportunity for The Bahamas over the next two to three years to offer a safe haven for those taking their wealth out of countries such as Switzerland, if it can reign in excessive regulation.

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