By BFSB WRITER, For The Guardian

Over the last 10 years, the Bahamas Financial Services Board has made significant effort to communicate with many international investors and clients. As it celebrates its 10th anniversary, BFSB is committed to supporting an expanded dialogue about financial services in The Bahamas. To initiate this dialogue we thought it might be useful to put the financial services industry in perspective.

The immediate challenge we face in talking about the financial services industry is that it is multifaceted. Over the course of these discussions we will seek to address the different components. Subsequent articles can be found in the business section.

To begin, we provide an overview of Financial Services and the important benefits it has consistently delivered to Bahamians.

Social Contribution

Financial services has advanced the middle class by firmly establishing The Bahamas as a premier service economy in advance of its regional competitors and providing an avenue from which to access the knowledge economy. This positive impact has greatly expanded the opportunities for technical workers, including plumbers, mechanics, etc.

The industry is an important contributor to the tourism and construction industries, that is, the second home and rental markets, through its ability to attract a high-end client base essential to the health of both of these sectors. The industry also generates business consumers of hotel rooms, the local housing market and ancillary services of the hotel and tourism sectors (inter-Island travel, watersports, e.g.).

The stability associated with the financial services industry has, together with tourism, served to undergird our economy, providing a healthy credit rating, essential to attracting foreign direct investment.

Opportunities & Threats

The pursuit of financial services by more than 40 countries demonstrates the industry's growing global importance for revenue generation. Among these countries are three new players in the Caribbean region alone — Trinidad and Tobago, Jamaica and the Dominican Republic.

There is a real opportunity to double employment in the country's financial services sector should The Bahamas Government pursue important infrastructure, administrative, and business opportunities to grow the business. These opportunities will only be secured when the clients' perception of quality services, delivered by our financial and professional firms, is aligned with their expectations.

We know what must be done to improve the infrastructure and government services — BTC and Registrar General remain top priorities. Having improved our ability to compete, we must define our business proposition. This proposition must be credible, sustainable and sufficiently profitable. To ensure that we can move forward, we must define where we can expand and reinforce our foothold in financial services. We must define which markets we will pursue, what products/services will be delivered and what is required to succeed. Fundamentally, we must calibrate our services with the needs and expectations of our targeted clientele.

The turmoil in the financial markets will cause financial services firms to re-examine their services and partners in delivering these services. Opportunities will present themselves for those who are prepared and who are connected to the new business drivers.

The results of the 2005 Bahamas Strategy & Branding Survey confirmed the opportunities available to us and pointed to the urgent need for a Strategic Review and Action Plan for the Bahamas Financial Services industry.

Without such action, it is not difficult to contemplate continued, and perhaps rapid, erosion of the international financial services industry, an industry that made a direct contribution of at least six to seven percent of the Bahamas GDP in 2004. Since the industry is estimated to make an indirect contribution of an additional six to seven percent, any decline would, equally, affect the employment-rich domestic banking sector, and the tourism and construction industries.

Environment

In a flattening world, we must add value. Services that can be commoditized will be relocated to the lowest cost provider.

While the financial markets are in crisis, the economies that are relevant and prepared to compete following the seismic changes in the financial services sector will benefit greatly.

There are more substantial changes in the competitive landscape.

* EU Savings Directive has driven substantial bank balances outside of Europe, with Singapore being the prime benefactor.

* Ratification of the Hague Convention by Switzerland. This and the tax ruling that transforms the trust business are designed to make Switzerland an attractive location for the administration of trusts.

* Liechtenstein promises to cooperate on tax matters after the high profile theft of client data and the aggressive pursuit by the German, United Kingdom and USA tax and political directorates.

* High level targeting of global banks and their perceived role in tax evasion.

* FATF 40 recommendations make reference to tax while Canada has announced a carrot and stick approach to the conclusion of TIEAs.

* Singapore is a model economic power, manifesting the benefit of a government-led commitment to the financial services industry. The jurisdiction is creating jobs at an unrelenting pace and attracting the best talent.

* The benefits generated by the industry are now attracting new industry participants. The wealth of the Middle East economies, such as Dubai, is being invested, in no small manner, in financial services. The governments of Trinidad and Tobago, Jamaica and the Dominican Republican are all implementing plans to enter the financial services race.

In the ensuing weeks, we will provide perspectives of industry participants as well as reports on the dynamics of this sector. In the meantime, we invite you to visit us at www.bfsb-bahamas.com.