October 10, 2019
Thank you for the invitation to participate in what I am sure will be a very informative and engaging seminar.
Ordinarily I’d focus my remarks on questions of WHAT. What is the upcoming legislative agenda for the Government? What new regulations are being proposed? Or, on a macro level, what is the landscape for financial services going to look like in the next five to ten years? While these questions are certainly important, and I will shed some light on these areas, I plan to focus my time on questions of HOW? In particular, HOW do we continue to operate as an industry, given what we can envision if we press fast-forward on our collective futures? This is the operative question because we are living in a new reality where change is happening at a rapid and constant pace; where disruptions are upending familiar systems; where the borders that defined domestic versus off-shore are shifting, along with expectations around fairness and transparency and multilateral collaboration.
If we take the digital economy as just one subsector, we can anticipate the type of changes that FINTECH innovations are ushering in. Digital currencies are not just coming. They are here now. In this very seminar you will learn more about how The Bahamas, with its Sand Dollar currency, is positioning itself to be at the forefront of this change curve. As the technologies and systems that support digital currencies are honed and more widely adopted, it is inevitable that the use of digital currencies will force shifts in the way we operate, and create new opportunities for the way we do business, solve problems and generate economic activity.
Earlier this year, we foreshadowed that the digital economy would be the next big frontier for discussions of taxation. As expected, taxation in the digital economy and the associated regulatory framework is now one of the key focal points of engagement within the international community. As these matters are contemplated and resolved, they will have an impact on the way we operate. They will present new opportunities that can be harnessed through innovation.
Over the next five to ten years, we should expect the financial services sector to continue to be defined by change and innovation. It has become cliché to talk about the goal post constantly changing. What that is really telling us, though, is that the goal post was not fixed in the first place. That was merely an illusion.
We are living and operating in a new dynamic that requires a different way of thinking than we have been doing before. We must stay nimble and have processes in place for how we respond, for how we adapt, for how we influence the direction of change. These are not things to be afraid of or to resist, and there is no need for us to stumble on change in a panic. We simply must be willing and able to contemplate the next move in the evolving canon of financial regulations and plot our position holistically and circumspectly. Business prudence demands this, and your clients should expect it.
I can assure you that this is the approach we are taking in Government as it relates to the financial services sector. Because of it, we feel very optimistic about our ability to withstand threats to the industry and to seize opportunities to expand our footprint. We feel very optimistic about our ability to anticipate, prepare for and influence change.
How are we doing this?
1. We have taken a seat at the table of global influence
We have increased our participation at meetings of the UN Committee of Experts on International Cooperation in Tax Matters and at the OECD. Over the past two years, we have signed up to numerous multilateral conventions. We are members of the Inclusive Framework on BEPS and members of the Global Forum on Transparency and Exchange of Information for Tax Purposes. In November, I travel to Paris to ensure that The Bahamas’ voice, at the highest political level, is on the record in discussions related to taxation of the digital economy at the Plenary of the Global Forum, among others.
Our discussions with the EU continue as we defend the legitimacy and integrity of our financial services industry. By asserting our rights more directly, we are protecting our sovereign interests and establishing a more respectable standard for mutual dialogue. The tone of their approach has changed from combative to cooperative.
What does this add up to? It means we are more present and we are more engaged at the highest levels of global influence on tax matters and financial services. We are more visible and more vocal where and when these discussions are being held, and our voice is being heard.
2. We are putting in place a modern system of financial legislation and regulation
The Government has pursued an aggressive legislative agenda over the past two years, resulting in new regulations like those covering economic substance and beneficial ownership. I know you are all familiar with them, and you have several discussions planned for the course of this seminar.
I can share with you that the Government has taken the industry’s feedback into consideration regarding the economic substance and beneficial ownership regulations, and we are currently fine tuning the legislation and guidelines based on the feedback provided.
You can feel confident that we are focused on safeguarding the performance of the industry, which has made The Bahamas a global market leader, and facilitating the industry’s further and future expansion. That means we recognize this is a partnership.
The last area I want to mention is this:
1. We are strengthening the connection between the domestic economy and the economies of scale generated through access to the financial system.
The clearest example of this is the national emergency we are currently in the middle of responding to: Hurricane Dorian. As you have seen in recent years, the closure of financial services institutions in some of our islands has had far reaching impact on the development of those islands. Regrettably, in the aftermath of Dorian, we are facing a similar crisis with banks and businesses shuttered, many for the medium to long term.
Our priority is in restoring the livelihoods of those affected as quickly as possible, so they can shake off the economic anxiety that currently exists. A critical part of that is restoring commerce to the affected areas, enabling them to once again be economic drivers.
I will present preliminary estimates of the fiscal impact of Hurricane Dorian in the House of Assembly today, showing how the pace at which we are able to deliver on our medium-term macroeconomic and fiscal plans will be impacted. Abaco accounted for 6.4 percent of Government revenues, while Grand Bahama constituted 7.3 percent of total revenues.
However, all things considered, our commitment to fiscal prudence and the discrete decisions taken prior to Hurricane Dorian, have put us in a better position, to manage the fiscal risks associated with this type of catastrophic environmental disaster. Here I am referring specifically to the Government’s decision to put in place the IDB contingent line of credit, the legal provisions to provide access to the use of extinguished Dormant Account proceeds, the decision to reinstate its insurance cover with the CCRIF, and the enhanced revenue measures that were approved in 2018.
Again, while we still have some way to go, taking these proactive steps have created a situation where the country is fortunately in a much better position financially to address these unfortunate shocks to the economy and be able to rebound more strongly.
Conclusion In closing, I’d like to turn things back around to you, as industry. Industry must take ownership over its future. No surprise here, the Government will not have all of the answers. Rightly so, it shouldn’t. The most important stakeholder that will determine the future of the financial services industry is industry. That future will be determined largely by how you collectively embrace the call to innovate; by how you explore and expand into new markets; by how you embrace new technologies and carve out new ways to add value.
I implore you to resist the temptation to close your eyes and bury your heads in the sand out of frustration or stubbornness.
None of us here today should fear moving away from the status quo. We should look to the future with optimism because opportunity abounds, and we have the capacity to maintain our position as an international leader in financial services and to expand our reach and impact.
Oscar N. Johnson Jr., Global Managing Director, The Hon. K. Peter Turnquest, Deputy Prime Minister and Minister of Finance, Tara Cooper -Burnside, Partner Higgs & Johnson, Lyford Cay Office
Source: MOF Central Communications Unit
Photos: John R. Williams