The Bahamas could see a 25 percent reduction in the number of private banks operating in the country in the wake of mounting international compliance requirements and increased costs of doing business, an international private bank CEO yesterday cautioned.

Speaking with Guardian Business, Andbank CEO Ricard Tubau stated that The Bahamas' banking sector could benefit from consolidation as local banks compete to maintain profits while taking on costs and challenges associated with compliance for the U.S.' Foreign Account Tax Compliance Act (FATCA) and Europe's Common Reporting Standard (CRS).

"I think you're going to have some sort of consolidation now not only because of FATCA and the CRS but because the cost of doing business is getting higher. Therefore you need more volume, more assets to get the same profit and when that happens you're going to see banks merging in order to acquire this additional volume and to keep the same level of profitability," Tubau noted.

And while Tubau and Andbank (Bahamas) Ltd. CEO Manel Martinez were optimistic about The Bahamas' medium term performance in the global financial services market, Tubau highlighted the disproportionately high number of commercial banks with Bahamian operations.

"Luxembourg has 150 [commercial banks], Monaco has 75, Lichtenstein has two or three, Andorra has five, and The Bahamas has more than 200. So I would say that you need some sort of consolidation, that's for sure. That's good for the country and that's good for the system because it makes the system more efficient. It has to happen so a reduction of 25 percent of the players might happen," said Tubau.

FATCA
While FATCA compliance remains one of the more pressing concerns of the local financial sector, Martinez told Guardian Business that Andbank's local branch was well-prepared for FATCA reporting, had already conducted testing ahead of the reporting deadline and was now turning its attention to the new challenge presented by the CRS.

"We are fully FATCA compliant. As a matter of fact we are prepared to accept any business from U.S. persons that are declared. Our IT systems are prepared for the exchange of information that's required," said Martinez.

FATCA is intended to ensure that the U.S. obtains account information held abroad at foreign financial institutions by U.S. persons. The Bahamas and the U.S. have an intergovernmental agreement in place, which requires the Bahamian government to serve as an intermediary between local financial institutions and the U.S. government for
information sharing and compliance purposes.

However, Tubau believes that The Bahamas needs to prepare for stiffer competition from the U.S. in the budding Latin American markets - charging that the playing field was currently leveled against smaller jurisdictions such as The Bahamas.

"The challenge, which is interesting, is the United States of America because the United States said that under FATCA that they would attempt to [offer] the possibility to do reverse FATCA to those countries that exchanged information with them but that has not happened yet.

"So when you are dealing with the United States as a booking center as an alternative to The Bahamas, then it wouldn't be fair for The Bahamas to enter into multilateral agreements that are forcing The Bahamas [to comply with] a situation that the United States is not. But then again, The Bahamas is not the United States," said Tubau.

Under "reverse FATCA" the U.S.' Internal Revenue Service (IRS) would require U.S. financial institutions to supply a non-resident's account information to the account holder's tax authority. However, the U.S. scrapped those plans in 2012. Yet Tubau said that this regulatory disparity was largely outside the control of the Ministry of Financial Services.

"The Bahamas has to fight as a jurisdiction to get a level playing field. We have to fight to get the same conditions for everyone and not be in a group that has disadvantages. We are fighting for the bilateral agreements... and we have to play to our strengths, for example the residential [component]," said Martinez.

Despite these hurdles, Tubau said the outlook remains optimistic regarding the prospects of Andbank (Bahamas) in the Latin American market as it conforms to the shifting international regulatory environment.

"We are optimistic here... Now we are living in moments of tectonic shifting where you have challenges but at the same time opportunities. The way we see it, we see huge opportunities for our group in connecting The Bahamas with Latin America. That's a specifically strong side of Andbank because 60 percent of the employees of Andbank are in Latin America. So we truly believe that this connection is going to happen.

"I think that the government here is doing a good job and the only thing that you cannot manage is the level playing field with the United States," Tubau stated.

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