New Order

The events of recent months have caused the authorities to consider the structure of a new super-regulator, which would extend the regulatory oversight of the existing Securities Commission, by bringing under its roof the Registrar of insurance Companies, the Compliance Commission and the Director of Cooperatives. The Central Bank, still responsible for banking regulation both offshore and onshore, would not be part of the enlarged Securities Commission.

It is hoped the move will streamline the regulation of the sector while committing the newly enlarged Comission to IOSCO principles (International Organisation of Securities Commissions), in line with the country's efforts to adopt international best-practices.

These developments will be encapsulated in the new Securities Industries Act, expected to be finalised early 2009, and a further amended Investment Funds Act. A further development last week saw the Commission start work on a draft Takeover Code with the aim of regulating mergers and acquisitions of Bahamian public companies and protecting the rights of minority shareholders.

These new measures in the regulation of local capital markets should be placed within the context of the ongoing debate over the exchange control regime of The Bahamas. The government has officially announced its desire to move cautiously towards abolishing exchange controls, a decision that is causing heated debate.

Opponents argue that the current regime has allowed an offshore banking sector to flourish while limiting the flight of local capital. Meanwhile, supporters argue that the current exchange regime has hindered the expansion of the local stock exchange due to limited volume and capitalisation. In theory foreign investors can invest on the local market with approval from the Central Bank, but in practice, the Bahamian markets have not attracted significant internationals funds to make any real impact.

"I always smile when people mention removing exchange controls, I have the opposite view. With an economy of this size, exchange controls can be a useful tool, the difficulty comes when exchange controls so encumber people that it becomes a barrier and not a protection mechanism which it was intended to be to begin with. Exchange controls were established for one reason only, to maintain the parity of the Bahamian currency with the US dollar," Keith Davies, chief executive of the Bahamas International Securities Exchange (BISX), told OBG.

In an effort to widen the ability to create products within the exchange control regime and a slackening of the amounts able to flow in and out of the country, steps have been taken to redraw the boundaries between the offshore and domestic markets. During late 2007 the Central Bank further relaxed its capital markets exchange controls to allow Bahamians to invest in international markets through investment vehicles listed on the Bahamas International Securities Exchange (BISX).

Additionally, the BISX is looking to launch new products specifically targeted at mutual funds and fund operators, and is working on amending the BISX Mutual Fund Listing Rules, which is expected to be finalised early 2009, to allow the Exchange to garner greater market share in this segment.

To date, however, the funds industry in the Bahamas has been limited to the administration of funds managed elsewhere, and its development has been further hampered by the EU Tax Havens Initiative. Although details remain scarce, this move is the next natural step toward the deepening and widening of the local exchange within the context of exchange regime constraints. An amended Securities Industry Act and Investment Funds Act is expected to be more a redrawing of boundaries rather than a move towards liberalisation of exchange controls.

Whilst the regulators are making incremental improvements in the system, a complete overhaul will continue to be a matter of political debate and further development of the local capital markets will continue within the structure of the current regime.