International financial centers (IFCs) will continue to be under the threat of extinction if they do not identify their value proposition in the face of the threat of the loss of their traditional business due to damaging policies from international financial watchdogs.
That was the sentiment of Graham Thompson Partner Ryan Pinder yesterday as he spoke to the audience of this year’s STEP Caribbean Conference.
Pinder said he is not optimistic about the survival of IFCs given the heavy pressure from international organizations to change their laws to ensure the tax compliance of the citizens of the countries that make up those international organizations, and ensure that the structures of IFCs benefit them.
“I think we are all in very serious trouble, and I don’t say this because I believe we cannot survive with compliant business,” said Pinder.
“Region-wide we struggle with a lack of identity and an opaque value proposition as international financial centers given today’s regulatory reforms and scope of business that we must adapt to.
“I think we have significant challenges to be viable as financial centers. I have difficulty identifying our competitive advantage and value proposition that clients’ will desire.
“Unless we adapt and can identify and convince the market of our value proposition in the new world order, we will struggle to continue. In the short term we will all try to survive, in the medium term we will struggle with innovation and differentiation, in the long term I fear many of us will not exist as IFCs any longer without fundamental and visionary policy direction and reform.”
Pinder said there has been a concerted effort from international financial watchdogs to stymie the services offered by IFCs, when the countries that make up these watchdogs have not imposed the same rules on themselves that stymie these smaller economies.
“These large economies and countries have admitted as much,” he said.
Pinder explained that while IFCs like The Bahamas have struggled to become compliant with these international bodies, they have not been left in a better position from a business standpoint.
“CRS (Common Reporting Standards) and FATCA (Financial Action Task Force) as we all know dismantled the value proposition of our region,” he said.
“These initiatives not only are obtaining the underlying goal of the major economies, increased fiscal transparency, but are also imposing cost and complexity of compliance that has the ability to force the private sector participants to retrench and consolidate, but also systematically dismantle the financial services industry as we know it for small, island-based IFCs.
“These tax initiatives have also eliminated the historical value proposition of IFCs such as The Bahamas and other regional IFCs, financial privacy and confidentiality. This is particularly important in markets such as throughout Latin America and other countries where citizen intimidation and victimization are the order of the day, removing a market for us that in all reality requires our services for their self-preservation.”
Pinder warned that IFCs are in the most difficult time of their history and will have to pass more legislation, create more innovation and a create better value propositions than they have before in order to survive.
He added that in order to do this there will have to be increased efforts in training, ease of doing business, client services and industry expansion.
“We have seen deposits and capital leave the jurisdictions,” he said.
“We have witnessed client structures being collapsed and simplified. We have witnessed compliance costs continue to climb through the roof in the private sector just to remain compliant. Fiscal transparency has been a difficult adjustment, one we have all paid the price for.
“Imagine a bank from one of these large economies doing business in our respective countries having to consider their continued presence because they cannot outsource their credit activities back to head office, or another member in the group. This would be devastating to our economies on a number of different levels. This I fear is a genuine reality today.”
He added that not complying with the changes suggested by the international organizations is not an option, but he assured that The Bahamas, despite its limited resources, has developed innovative ideas that have kept the financial services sector ahead of the curb in the past.
“Unfortunately we find ourselves in an environment of reform that we are not used to,” said Pinder.
“We must find a way to adjust. I opened the conversation today stating that we might not all survive what we are facing. I still believe that. We have a lot of work to do.”
Education: Florida International University, BS in Journalism