Barbados tends to avoid summer hurricanes due to its position outside the typical path of Atlantic storms. In the hurricane of the 2008/2009 financial crisis, the Barbados financial sector also held up well. Not a single Barbados bank was bailed out, and none failed.
Naturally, there were, and still are, stresses in the domestic economy reflecting the drop in tourism, and other activities due the global recession. But international business and the offshore financial sector were, and are, effectively insulated from this.
The Central Bank of Barbados maintains and enforces regulations that are appropriate to the risks each institution is taking. This accommodates a range of banks in the landscape, from privately owned institutions that use no leverage and have no third-party clients, to large, complex banks that are publicly listed and active in numerous markets on behalf of clients in Barbados and around the world. There are a number of smaller offshore banks that work with offshore clients and provide services ranging from bank accounts to investments to tax structuring.
Within Barbados, there is also growing base of providers of investment management and insurance services. Some of these are tailored to specific needs — for example of Canadian or UK-based entities. Some provide global investment management for offshore clients in Barbados and around the world. Others are focused on the everyday needs of people on the ground in Barbados: world-class mutual funds, investment management services, and pension products. More and more, for international and local investors alike, it’s all right here in Barbados.
It’s worth remembering, though, that on its own, the financial services industry has no reason to exist. This is true in Barbados, as in every other financial centre in the world. In our everyday lives, or for work, we all bank, or use investment management services or insurance. But these various financial services are a support function. They create value by allowing other parts of the economy to function better, by moving capital from where it is temporarily not required, to where it is and can be put to good, productive use.
The Barbados financial services sector is surprisingly well-developed, strong and stable, and because of this, it is in a position to support economic activity far beyond its borders.
The offshore financial services sector is where international businesses are served. It is deeply woven into the fabric of dealings with the countries that trade with and through Barbados, and have done for decades. They are focused in the countries that have robust, long-standing double taxation treaties with Barbados. Canada, for example, has had a treaty in place with Barbados since 1980. These numerous treaties are in turn supported by Barbados’ recognition by global organizations such as the OECD as a jurisdiction with fair taxation levels and appropriate information disclosure.
This status of Barbados as a valid and sustainable point of access to global banks, insurance and investments, is also heightened by the regulatory regime. There is tougher regulation of Barbadian banks than in some of the key G20 countries, and anti-money laundering requirements are appropriately robust. Barbados has historically been seen as a jurisdiction for facilitating financial activity — not concealing it — and its international reputation reflects this.
It’s not surprising that the Canadian banks are some of the biggest players in Barbados offshore banking. There is a long history of trade between the two countries, and the double taxation treaty between Canada and Barbados is significant and longstanding. The Royal Bank of Canada, for example, opened its first branch in Barbados in the early 1900’s. Canadian banks became known as some of the strongest and most stable throughout the most recent financial crisis. Around the world, individuals and businesses are wondering who they can trust with their finances — and a clean bill of health through the hard times is a strong endorsement for the future.
Looking forward, the depth and breadth of financial services offered by providers in Barbados will almost certainly grow. At the same time, the regulatory landscape will likely evolve in ways that are not yet completely certain. This may affect international business setting up to operate directly as financial institutions in Barbados more than it will users of financial services. A new Financial Services Commission is expected to be established in 2010 or 2011 to enhance the supervision and regulation of insurance companies, investment managers and co-ops. The timing and exact form of this new entity is not yet known, although there has been a good dialogue between the government and regulated entities as the legislation was formed.
On the negative side, new entities looking to set up and engage directly in regulated financial activities in Barbados, even today, should prepare themselves for an experience that could be more “slow and steadyâ€ than “instant gratificationâ€. Regulators can take time to move on new applications, and due diligence can also be time consuming. Patience and advance planning is required. The right professional assistance on the ground can also help identify roadblocks and work around them.
In the coming years, as the Barbados financial sector evolves and grows, the one thing that is unlikely to change is its underlying strength and stability. From this foundation, it will be in a position to support an ever-widening, and deepening, network of tax treaties — and the range of international business activities that goes with them.