Current Perspective

With the worst of the COVID-19 pandemic and related restrictions firmly in the past, the Bahamian economy has continued to recover over the last 12 months, primarily due to strong performance in the tourism sector, which some are referring to as “revenge tourism”. In the Monthly Economic and Financial Developments Report for July 2023, the Central Bank of The Bahamas indicated that “the growth trajectory of the domestic economy persisted, although at a moderate pace”, and this growth is projected to continue for the remainder of 2023. While this positive news is being well received, the cost of living crisis, high inflation, record energy costs and climate change remain at the forefront of the minds of Bahamian consumers (in the same way as applies to consumers in most other countries).

A number of the themes highlighted in the 2022 Trends and Developments chapter have continued to dominate the legal and regulatory framework relating to financial services in The Bahamas, including:

• the continued focus of policymakers on strengthening public finances;
• the ongoing modernisation of the Bahamian payment system; and
• the establishment of a new regulatory framework for the digital assets space.

While not restricted to the financial services sector alone, another important development impacting all Bahamian entities is the recent overhaul of the economic substance legislative framework.

Continued Focus of Policymakers on Revenue Enhancement

As part of the government’s ongoing efforts to increase revenue and strengthen public finances, additional human resources were allocated to the revenue collection sections of the Department of Inland Revenue. Meanwhile, the enforcement provisions in various revenue-related statutes, including the Value Added Tax Act, 2014, have been enhanced. In addition, the new Business License Act, 2023 (the “new BLA”), came into force on 1 July 2023, as a part of the annual budget exercise. The new BLA, among other things, repealed the prior Business License Act, 2010, and expanded the categories of businesses subject to business license tax. The requirement for financial institutions to pay an annual tax based on turnover remains.

Ongoing Modernisation of the Bahamian Payment System

The Central Bank of The Bahamas Payment Systems Modernization Initiative is ongoing. 31 December 2024 remains the target date for the elimination of cheque usage. Local financial institutions continue to encourage customers to utilise virtual platforms for the delivery of their services.

Regarding the “Sand Dollar”, a digital currency denominated in Bahamian dollars, there have been increased efforts to raise public awareness of it and promote its use as an alternative to cash.

Modernisation of the Regime Related to Digital Assets

The legislation regulating the digital assets space (the DARE Act) was initially implemented in 2020. In 2022, the government of The Bahamas published the Policy White Paper on The Future of Digital Assets in The Bahamas (the “White Paper”), outlining its vision and policy position on the regulation of the digital assets space over the next five years. The objectives outlined in the White Paper included growing the sector, increasing the attractiveness of The Bahamas for digital assets businesses, establishing The Bahamas as a leading digital assets hub, and encouraging innovation in the fintech space.

In order to address the rapid evolution of the sector and to strengthen the robustness of the regime, the Securities Commission of The Bahamas (the “Commission”) confirmed its intention to review and amend the DARE Act during the first half of 2022. As a result, a draft of the Digital Assets and Registered Exchanges Bill, 2023 (the “new Bill”), was circulated for industry consultation earlier in 2023. The new Bill seeks to enhance investor protection while maintaining sufficient flexibility to facilitate innovation. The amendments contemplated include, among other things:

• expanding the scope of digital asset activities which will be subject to regulation;
• the introduction of capital requirements as prescribed by the Commission;
• mandatory ongoing financial reporting (including audited financial statements);
• the mandatory segregation of client assets; and
• enhanced investigation and enforcement powers for the Commission.

It is anticipated that the new Bill will be brought into force later in 2023.

Overhaul of the Economic Substance Framework

The recent overhaul of the regulatory framework relating to economic substance has impacted all Bahamian entities, not just those in the financial services sector. For background, in accordance with international best practices, in 2018, The Bahamas implemented legislation requiring Bahamian entities engaged in certain activities to establish a substantial economic presence in The Bahamas, and for all Bahamian entities to comply with substance reporting requirements. On 1 September 2023, the 2018 legislation was repealed and the Commercial Entities (Substance Requirements) Act, 2023 (the “new CESRA”), was brought into force. The new CESRA, among other things:

• shifted the reporting obligation from the entity itself to its registered agent or, if the entity does not have a registered agent, the Compliance Commission;
• expanded the list of information which must be reported to the competent authority;
• mandates that registered agents or the Compliance Commission obtain this information from each Bahamian entity; and
• made some modifications to the classifications for reporting purposes.

The accompanying guidelines for the new CESRA were circulated on 8 September 2023.

Conclusion

The upward trend of the Bahamian economy is welcomed with cautious optimism. The recent legislative changes reflect The Bahamas’ commitment to complying with international best practices and maintaining a sound regulatory framework, while still encouraging innovation.