Offshore Banking and Financial Services – Bahamas Business Guide

Business Guide

There is nothing new about offshore to banks, investment funds and
other types of financial institution; most of them long ago set up
offshore branches in order to service multinational corporations, to
facilitate trade, and to provide investment management for
high-net-worth individual customers.

Some offshore jurisidictions have developed as centres for
particular types of offshore financial service: thus, there are 700
banks in the Caymans, and several thousand investment funds in

In recent years, growing financial awareness has created strong
demand for offshore financial services among a wider community of
customers; this is especially true of offshore investment funds. Even
so, offshore financial services have tended to remain the preserve of
larger companies or of relatively wealthy and sophisticated individuals
– transaction costs are high and information not always easy to come

The Internet however opens the way to a far broader market for the
providers of offshore financial services, by reducing transaction costs
and by making information about offshore available instantly to anyone
who is interested. This last point is important: until now, the
marketing media used by offshore financial service providers have been
subject to strong local regulation which controlled and limited the
advertising of financial products. Thus, at present, a financial
magazine based in, say, EU country X, is obliged by the regulators of
country X not to accept advertisements for retail financial services
unless the providers have conformed to local regulations (and have
joined the appropriate trade body and have paid their dues!). No such
pressures exist on the Internet, and it is difficult to see how they
could be brought into play. An investment fund may say firmly (and
does) on the Internet that its products are not offered to citizens of
country X; but the citizens can still read about them, download the
offers, and get Uncle Joe living in Spain to make the purchase for them
using money in an Isle of Man bank account.

Offshore providers of financial services have strong competitive
advantages and the unclogging of marketing channels may unleash a tidal
wave of demand for their products. Here are some of the competitive
advantages of offshore:

Profits are less highly-taxed, or untaxed, allowing cheaper products

Offshore jurisdictions are usually less highly regulated than
high-tax countries, so that an offshore financial institution has more
flexibility in planning, marketing and delivering products
Financial products themselves can take advantage of a low-tax environment in order to deliver greater returns to customers

The cost base of an offshore location is often more favourable than that of a high-tax location

These competitive pressures on the financial services market will
be so great that institutions will be forced to use the Internet, and
forced to do so from offshore, at least when they are not prevented by
regulatory bodies from marketing offshore products. They often are, of
course, and it will be interesting to see how far the Internet breaks
down many of those regulatory barriers.

The whole range of retail financial services can be provided from
offshore using the Internet. Services and products can include:

Electronic banking including current and deposit account maintenance, paying bills, direct debits etc

Offer and sale of stocks and shares, investment and mutual fund units, equity derivatives etc

Foreign exchange services

Offer, sale and maintenance of savings products including pension schemes

Offer and sale of insurance products

Of the 28 jurisdictions covered in, 8 have stock
exchanges, 15 have significant banking sectors, 12 have large mutual
fund sectors, and 7 have insurance industries. What is noticeable is
that growth rates in terms of numbers of institutions and volume of
assets are far higher than the equivalent rates onshore, and that a
high proportion of the institutions concerned are actively making use
of e-commerce. Offshore financial services may be starting from a low
base, and the volume of e-commerce transactions is not yet great, but
if current trends are maintained then offshore electronic financial
services will present a major challenge to their onshore brethren in a
small number of years.