1. The Fintech Landscape
1.1 Please describe the types of fintech businesses that are active in your jurisdiction and the state of the development of the market, including in response to the COVID-19 pandemic and ESG (Environmental, Social and Governance) objectives. Are there any notable fintech innovation trends of the past year within particular sub-sectors (e.g. payments, asset management, peer-to-peer lending or investment, insurance and blockchain applications)?
The Government of The Bahamas has developed a policy that favours the development and innovation of the fintech sector in The Bahamas. The legislative framework to regulate digital assets businesses, the Digital Assets and Registered Exchanges Act, 2020 (the “DARE Act”), was initially introduced in 2020. Last year, the Government released a White Paper, “The Future of Digital Assets in The Bahamas”, outlining its vison and framework for the country’s digital assets policy through 2026. This has resulted in widespread recognition of The Bahamas as a premier jurisdiction for fintech businesses, particularly those geared toward digital assets. A number of highly recognisable brands in the global fintech industry have established a presence in The Bahamas since the introduction of the DARE Act and others continue to follow suit. At the end of April 2023, the Securities Commission of The Bahamas (the “SCB”), the regulator responsible for the sector, released an initial draft of a new Digital Assets and Registered Exchanges Bill, 2023 (the “DARE Bill”) for consultation. The DARE Bill will repeal and replace the DARE Act and implement a range of new amendments which are intended to strengthen the existing framework and to ensure its ongoing compliance with international standards and best practices.
1.2 Are there any types of fintech business that are at present prohibited or restricted in your jurisdiction (for example cryptocurrency-based businesses)?
At present, no types of fintech business are expressly prohibited under Bahamian law. In general, subject to obtaining the relevant regulatory approvals, a fintech business may operate in The Bahamas as long as it is not established for an unlawful purpose or a purpose that is contrary to public policy. However, the DARE Bill, if passed, will prohibit mining digital assets in or from The Bahamas.
2. Funding For Fintech
2.1 Broadly, what types of funding are available for new and growing businesses in your jurisdiction (covering both equity and debt)?
Equity and debt funding (from both public and private sources) are available to new and growing businesses in The Bahamas.
Where a business wishes to raise capital by offering its securities for sale to the general public, it may do so subject to meeting the requirements for initial public offerings (“IPO”) prescribed under the Securities Industry Act (“SIA”), the Security Industry Regulations (“SIR”), and the listing rules of the Bahamas International Securities Exchange (“BISX”). A fintech business that wishes to make an initial token offering (“ITO”) must comply with the requirements under the DARE Act.
Additionally, fintech businesses may obtain loans from private lenders, including financial institutions and individuals in The Bahamas, free from regulatory restraints. Fintech businesses under Bahamian proprietorship also have the option of approaching the Bahamas Development Bank or the Small Business Development Centre and availing themselves of the various loans and grants offered by those institutions.
2.2 Are there any special incentive schemes for investment in tech/fintech businesses, or in small/ medium-sized businesses more generally, in your jurisdiction, e.g. tax incentive schemes for enterprise investment or venture capital investment?
There are no special incentive schemes dedicated to fintech businesses in The Bahamas. However, the Commercial Enterprises Act (“CEA”) offers streamlined regulatory approvals and certain incentives to specified commercial enterprises, including a number of technology focused enterprises. These may be extended to cover certain fintech businesses. In order to fall within the CEA, the business must:-
- be established by, a Bahamian, a non-Bahamian with a minimum investment of not less than B$250,000 as a joint venture or partnership between a Bahamian and non-Bahamian,
- carry on business in a prescribed sector, including among others, computer programming, software design and writing, bioinformatics and analytics, nanotechnology and data storage, and
- be specifically approved by the Bahamas Investments Board.
2.3 In brief, what conditions need to be satisfied for a business to IPO in your jurisdiction?
IPOs in The Bahamas are governed by the SIA and SIR. A business seeking to launch an IPO in The Bahamas is required to a register a preliminary prospectus and a prospectus with the SCB, unless an exemption from this requirement applies. There are a number of exemptions from the requirement to register a prospectus, including offerings to accredited investors only and offerings by approved foreign issuers (as defined in the SIA).
Under BISX listing rules, each issuer must expect a foreseeable market capitalisation of at least B$1 million for shares and B$400,000 for each class of debt securities to be listed. The business must have been in operation for at least three years, and audited annual accounts must have been prepared in accordance with the law of the country in which the company was registered. In the case of a company with subsidiaries, its annual accounts must be in consolidated form. Where a new applicant has a controlling shareholder, BISX may require the appointment of a majority of independent non-executive directors. The listed securities must be in dematerialised form and freely transferable. The offering must be for at least 25% of the class of securities offered.
2.4 Have there been any notable exits (sale of business or IPO) by the founders of fintech businesses in your jurisdiction?
At present, there is no information available that indicates notable exits or sales of businesses or IPOs in the fintech sector in The Bahamas.
3. Fintech Regulation
3.1 Please briefly describe the regulatory framework(s) for fintech businesses operating in your jurisdiction, and the type of fintech activities that are regulated.
The primary regulator for fintech activities such as non-banking financial services and digital assets business is the SCB.
Any person engaging in digital assets business in or from The Bahamas must be registered with the SCB under the DARE Act. For the purposes of the DARE Act, (i) “digital assets” includes “any digital representation of value distributed through a distributed ledger technology platform where value is embedded or in which there is a contractual right of use, including a contractual token”, and (ii) “digital assets business” includes digital token exchanges, providing services related to a digital token exchange, operating as a payment service provider utilising digital assets, operating as a digital asset service provider, participating in and providing financial services related to an issuer’s offer or sale of a digital asset and any other activity prescribed by regulation. The DARE Act applies to any legal entity carrying on a digital asset business with Bahamian residents, irrespective of the physical location from which the activity is carried out. ITOs are also regulated under the DARE Act.
If passed, the DARE Bill will regulate a broader scope of digital assets businesses, including among others, the management of digital assets, digital asset derivative services and staking. In addition, the SCB will have the discretion to prescribe other forms of digital assets businesses.
A non-banking entity providing financial services in or from The Bahamas must be licensed with the SCB as a financial services provider under the Financial and Corporate Services Providers Act, 2020 (“FCSPA”). Licensable activities include money lending, money broking, payday and cash advances, credit extension, bill paying services, debt collection, financial leasing, custody of digital assets and the provision of digital wallets. One of the proposed revisions under the DARE Bill is to move the custody of digital assets and the provision of custodial wallet services from regulation under the FCSPA to the DARE Bill.
Fintech activities in the form of payment systems and the issuance of electronic money (fiat) are regulated by and require a licence from The Central Bank of The Bahamas (“Central Bank”).
3.2 Is there any regulation in your jurisdiction specifically directed at cryptocurrencies or cryptoassets?
The DARE Act is specifically directed at cryptocurrencies and other cryptoassets, which would fall under the definition of “digital assets” set out in that Act.
3.3 Are financial regulators and policy-makers in your jurisdiction receptive to fintech innovation and technology-driven new entrants to regulated financial services markets, and if so how is this manifested? Are there any regulatory ‘sandbox’ options for fintechs in your jurisdiction?
Policy-makers in The Bahamas and the SCB are receptive to and supportive of fintech innovation in The Bahamas. One of the policy objectives set out in the Government’s White Paper, “The Future of Digital Assets in The Bahamas”, is “to encourage innovation in the Fintech space and identify emerging technologies that would help maintain The Bahamas’ competitive advantage”.
Not only has the Government set out its policy objectives for the sector for the next five years, but The Bahamas is also one of the first jurisdictions to regulate the digital assets space through the DARE Act. The recent launch of the DARE Bill for consultation demonstrates the commitment by the SCB to ensure that the regulatory regime for digital assets in The Bahamas continues to keep pace with the rapid evolution of the space and international best practices.
3.4 What, if any, regulatory hurdles must fintech businesses (or financial services businesses offering fintech products and services) which are established outside your jurisdiction overcome in order to access new customers in your jurisdiction?
A fintech business established outside The Bahamas wishing to access new customers in The Bahamas must obtain (i) if owned by non-Bahamians, approval of the National Economic Council (“NEC”) to conduct business from The Bahamas, (ii) approval of the relevant financial services regulator, such as the SCB under the DARE Act, the FCPSA or the SIA or the Central Bank under the Banks and Trust Companies Regulation Act (“BTCRA”), as applicable, (iii) a business licence from the Department of Inland Revenue (“DIR”) to conduct business in The Bahamas, (iv) registration with the DIR for value-added tax purposes, (v) work permits for any non-Bahamian citizens who wish to work in The Bahamas, and (vi) registration with the National Insurance Board.
Although not specifically a regulatory hurdle for fintech business established outside of The Bahamas, Exchange Controls exist in The Bahamas, which require that “residents” for Exchange Control purposes, obtain the prior approval of the Central Bank to deal in foreign currency and to hold assets denominated in foreign currency.
4. Other Regulatory Regimes / Non-Financial Regulation
4.1 Does your jurisdiction regulate the collection/use/transmission of personal data, and if yes, what is the legal basis for such regulation and how does this apply to fintech businesses operating in your jurisdiction?
The collection/use/transmission of personal data in The Bahamas is regulated by the Data Protection (Privacy of Personal Information) Act (“DPA”). Specifically, under the DPA, data controllers are required to comply with the following requirements in relation to personal data kept by them: (i) the data must have been collected by means which are both lawful and fair in the circumstances of the case; (ii) the data must (a) be accurate and, where necessary, kept up to date, (except in the case of back-up data) and kept only for one or more specified and lawful purposes, (b) subject to certain statutory exceptions, not be used or disclosed in any manner incompatible with that purpose or those purposes, (c) be adequate, relevant and not excessive in relation to that purpose or those purposes, and (d) not be kept for longer than is necessary for that purpose or those purposes, except in the case of personal data kept for historical, statistical or research purposes; and (iii) appropriate security measures must be taken against unauthorised access to, or alteration, disclosure or destruction of, the data and against its accidental loss or destruction. In addition, data controllers owe a duty of care regarding the collection of personal data or information intended for inclusion in such data. Data processors are also subject to statutory duties of confidentiality.
For the purposes of the DPA, a “data controller” is as a person who, either alone or with others, determines the purposes for which and the manner in which any personal data is processed. The DPA applies to a data controller in respect of any data only if: (a) the data controller is established in The Bahamas and the data is processed in the context of that establishment; or (b) the data controller is not established in The Bahamas but uses equipment in The Bahamas for processing the data otherwise than for the purpose of transit through The Bahamas.
Other professional service providers are subject to common law duties of confidentiality that prohibit the disclosure of confidential client information without their consent, subject to certain exceptions.
4.2 Do your data privacy laws apply to organisations established outside of your jurisdiction? Do your data privacy laws restrict international transfers of data?
The DPA applies to a data controller in respect of any data only if: (a) the data controller is established in The Bahamas and the data is processed in the context of that establishment; or (b) the data controller is not established in The Bahamas but uses equipment in The Bahamas for processing the data otherwise than for the purpose of transit through The Bahamas.
Under section 17 of the DPA, the Data Commissioner has the power to prohibit the transfer of personal data from The Bahamas to a place outside The Bahamas where there is a failure to provide protection equivalent to that provided under the DPA either by contract or otherwise. In determining whether to prohibit a transfer of personal data under this section, the Commissioner must consider whether the transfer would be likely to cause damage or distress to any person and have regard to the desirability of facilitating international transfers of data. Where personal data is stored outside of The Bahamas, there should be adequate security measures to comply with the requirement under section 6 of the DPA for appropriate security measures to be taken against unauthorised access to, or alteration, disclosure or destruction of, the data and against its accidental loss or destruction.
4.3 Please briefly describe the sanctions that apply for failing to comply with your data privacy laws.
Offences under the DPA include obtaining access to personal data, or information constituting such data, without the prior authority of the data controller or data processor by whom the data is kept or disclosing the data or information to another person. Such offences are punishable, on summary conviction, by a fine not exceeding B$2,000 or, on conviction on information, to a fine not exceeding B$100,000. Where a person is convicted of an offence under the DPA, the court may order any data material that appears to the court to be connected with the commission of the offence to be forfeited or destroyed and any relevant data to be erased.
In addition, the Data Commissioner may investigate, or cause to be investigated, whether any of the provisions of the DPA have been, are being or are likely to be contravened by a data controller or a data processor. If the Data Commissioner is of the opinion that a data controller or a data processor has contravened or is contravening a provision of the DPA in a way that is not an offence, the Data Commissioner may, by notice in writing, require the person to take corrective steps within the time frame specified in the notice.
A person guilty of an offence under the DPA is liable: (a) on summary conviction, to a fine not exceeding B$2,000; or (b) on conviction on information, to a fine not exceeding B$100,000 (section 29(1) DPA). Where a person is convicted of an offence under the DPA, the court may order any data material that appears to the court to be connected with the commission of the offence to be forfeited or destroyed and any relevant data erased (section 29(2) DPA).
4.4 Does your jurisdiction have cyber security laws or regulations that may apply to fintech businesses operating in your jurisdiction?
The only cybersecurity law in the Bahamas is the Computer Misuse Act (“CMA”), which makes it a criminal offence to gain unauthorised access to computer material or use a computer to facilitate the commission of an offence or cause the unauthorised modification of any computer material. The unauthorised use of a computer or interception of computer material and the unauthorised disclosure of access codes are also offences under the CMA for which various penalties are prescribed.
4.5 Please describe any AML and other financial crime requirements that may apply to fintech businesses in your jurisdiction.
Anti-money laundering and counter terrorism financing (“AML/CFT”) are regulated under the Proceeds of Crime Act, 2018 (“POCA”), the Anti-Terrorism Act, 2018 (“ATA”), the Financial Transactions and Reporting Act, 2018 (“FTRA”), the Financial Transactions Reporting Regulations, 2020 and the Financial Intelligence (Transactions Reporting) Regulations, 2001, all of which apply to persons registered under the BTCRA, the DARE Act and the FCSPA.
Under the FTRA, financial institutions are required to conduct customer due diligence, develop and implement procedures for the prevention of activities related to identified risks (such as corruption, cybercrime, human trafficking, money laundering or financing of the proliferation of weapons of mass destruction, terrorism or financing of terrorism), designate compliance officers and report suspicious transactions.
The Digital Assets and Registered Exchanges (Anti-Money Laundering and Countering the Financing of Terrorism) Rules, 2022 (“Rules”) establish a bespoke AML/CFT regulatory framework applicable to digital assets business registered under the DARE Act.
4.6 Are there any other regulatory regimes that may apply to fintech businesses operating in your jurisdiction (for example, AI)?
Any fintech business operating in or from The Bahamas must obtain a business licence, and if its revenue exceeds the prescribed threshold, register with the DIR for value-added tax purposes.
5. Accessing Talent
5.1 In broad terms, what is the legal framework around the hiring and dismissal of staff in your jurisdiction? Are there any particularly onerous requirements or restrictions that are frequently encountered by businesses?
The legal framework for hiring and dismissal of staff in The Bahamas is primarily contained in the Employment Act, 2001 as amended by the Employment (Amendment) Act, 2017 (“Employment Act”).
The Employment Act prescribes the minimum entitlement of employees to days off, sick leave, vacation leave, maternity and family leave, as well as the notice and pay requirements for severing employment.
An employee may be dismissed summarily (without notice or severance pay) as a result of their fundamental breach of the employment contract. Where fundamental breach is not alleged, an employee may be dismissed with notice or, if the contract permits, pay in lieu thereof. The minimum required notice period will depend on (i) the employee’s position, and (ii) the length of time for which the employee has been employed.
Where employment is terminated because of redundancy, non-managerial employees are entitled to receive two weeks’ basic pay in lieu of notice plus two weeks’ basic pay for each full year of service (pro-rated for part of a year) to a maximum of 24 weeks, and managerial employees are entitled to one month’s basic pay in lieu of notice plus one month’s basic pay for each full year (also pro-rated) up to 48 weeks. There are procedures to be followed where more than 20 employees are to be made redundant. These include prior consultation with the Minister of Labour and certain disclosures to employees.
5.2 What, if any, mandatory employment benefits must be provided to staff?
The following are minimum statutory employment benefits:
- Days off – in every seven-day period, each employee must be allowed at least 48 hours of rest of which 24 hours must be consecutive.
- Overtime pay – where an employee is required to work in excess of standard work hours (typically 40 hours) overtime pay is one and one-half times their regular wage rate. For work performed on public holidays, twice the regular wage rate applies.
- Sick leave – an employee who has been employed for at least six months is entitled to one-week sick leave with pay in any year where he is ill and unable to work.
- Vacation leave – every employee is entitled to at least two weeks’ paid vacation leave per year upon the completion of each 12 months of employment up to seven years, and after seven years the annual vacation leave is three weeks.
- Maternity leave – a pregnant employee is entitled to 12 weeks’ paid leave. If there is illness arising out of a confinement, an employee may obtain additional unpaid leave up to but not exceeding six weeks if a medical practitioner recommends additional leave.
- Family leave – an employee who has been employed for at least six months is entitled to family leave without pay for up to one week per annum following the birth of a child or the death or illness of a child, spouse or parent.
- National Insurance – employers are required to contribute 5.9% of the insurable earnings of each employee (currently B$600 per week) to the National Insurance Fund, under the provisions of the National Insurance Act.
There is no requirement under Bahamian law for employers to provide private health insurance, employee pensions or other like benefits.
5.3 What, if any, hurdles must businesses overcome to bring employees from outside your jurisdiction into your jurisdiction? Is there a special route for obtaining permission for individuals who wish to work for fintech businesses?
Any employer seeking to bring employees from outside of The Bahamas is required to obtain a work permit in respect of each such employee from the Department of Immigration. Work permits may be short term (90 days or less) or long term (more than 90 days). For short-term work permits, at least two days prior to the worker’s arrival in The Bahamas, the employer must provide the Department of Immigration with the worker’s itinerary and a copy of the worker’s passport.
The process for long-term work permits is more extensive and the permit must be approved prior to the worker’s arrival in The Bahamas. The worker’s spouse and dependent children may also apply for an annual residence permit.
6.1 Please briefly describe how innovations and inventions are protected in your jurisdiction.
A fintech business may apply for a patent for an invention under the Industrial Property Act, 1965 (“IPA”). Under the IPA, a patentee has the sole and exclusive right to make, use, exercise and vend the invention, the subject of his patent, and to authorise others so to do (section 3, IPA). Infringements of patent rights are actionable at the suit of the patentee and in any proceedings for such an infringement all relief by way of damages, injunction, account or otherwise are available (section 19, IPA).
A person claiming to be the proprietor of an original design may obtain a copyright by applying to the Industrial Property Office (section 30, IPA). A design copyright gives no rights in any features of an article in so far as these are dictated solely by the function which the article is intended to perform or in any method or principle of construction (section 35, IPA).
There is currently no statutory protection in The Bahamas for trade secrets; however, trade secrets may be protected by contract or at common law.
6.2 Please briefly describe how ownership of IP operates in your jurisdiction.
There are three principal forms of intellectual property capable of statutory protection in The Bahamas:
- trade marks; and
Each of the three principal forms of intellectual property is capable of being owned and such ownership is capable of assignment.
Copyrights are protected under the Copyright Act, 2000 (“CPA”). The author of a protected work is the first owner of any copyright in that work. In the case of a work made in the course of employment, the employer or other person for whom the work was prepared is considered the author unless the parties have expressly agreed otherwise and the employer owns all of the rights comprised in the copyright (section 19 (2), CPA). Where a protected work is a work of joint authorship, the joint authors are co-owners of the copyright in that work (section 19 (3), CPA). Copyright in each contribution to a collective work is distinct from copyright in the collective work as a whole, and vests initially in the author of the contribution. In the absence of an express transfer of the copyright or any rights under it, the owner of copyright in the collective work is presumed to have acquired only the privilege of reproducing and distributing the contribution as part of that particular collective work, any revision of that collective work and any later collective work in the same series (section 19 (4), CPA).
Trade marks are, in accordance with the provisions of the Trade Marks Act 1906 (“TMA”), marks that are used or proposed to be used upon or in connection with goods (currently in The Bahamas trade marks cannot be registered in relation to services) for the purpose of indicating that they are the goods of a particular proprietor. A proprietor may seek registration of a trade mark in association with such goods as may be permissible under the TMA. Where such application is made there shall be a period of time within which objection to registration may be lodged. The fact that a person is registered as proprietor of a trade mark is prima facie evidence of the validity of the original registration of such trade mark and of all subsequent assignments and transmissions of the same.
With respect to patents, under the IPA, the person entered on the register of patents as the grantee or proprietor is the owner of the patent (the “patentee”). Where a patent is granted to two or more persons, unless an agreement to the contrary is in force, each patentee is entitled to an equal undivided share in the patent and is entitled to make use of, exercise and vend the patented invention for his own benefit without accounting to the other or others (section 24, IPA).
6.3 In order to protect or enforce IP rights in your jurisdiction, do you need to own local/national rights or are you able to enforce other rights (for example, do any treaties or multi-jurisdictional rights apply)?
A fintech business may register its registerable trade mark(s) under the TMA. A trade mark must be registered in order for proceedings to be instituted to prevent its infringement or to recover damages for its infringement (section 42, TMA). Although proceedings cannot be brought under the TMA for infringement of an unregistered trade mark, it is possible to enforce such a trade mark by bringing a common law action under the tort of passing off. A trade mark registration in The Bahamas grants rights only in respect of The Bahamas.
Works of copyright are protected under the CPA if: (a) on the date of first publication, one or more of the authors is a qualified person; (b) the work is first published in The Bahamas or in a foreign nation that, on the date of first publication, is a party to the Universal Copyright Convention; or (c) the work is protected under the Berne Convention. Under the CPA, a “qualified person” is (a) in the case of an individual, a person who is a citizen of, or whose habitual residence or domicile is in The Bahamas, or whose habitual residence or domicile is in a foreign nation that is a party to a copyright treaty to which The Bahamas is also a party, and (b) in the case of a body corporate, a body incorporated or established under any written law of The Bahamas or of a foreign nation that is a party to a copyright treaty to which The Bahamas is also a party (section 7, CPA).
6.4 How do you exploit/monetise IP in your jurisdiction and are there any particular rules or restrictions regarding such exploitation/monetisation?
Under the CPA, the ownership of a copyright may be transferred in whole or any of the exclusive rights comprised in a copyright (such as moral or economic rights) may be transferred and owned separately. The copyright may also be licensed under an exclusive licence (section 20, CPA). Otherwise, the holder of a copyright has the exclusive right to sell copies of the work in question for monetary gain in the usual manner.
With respect to trade marks, upon registering a trade mark, a trade mark holder shall have the exclusive right to associate that mark with goods of the class in which the mark is registered. A trade mark holder is also at liberty to assign the mark.
Under the IPA, the person registered as proprietor of a patent or design has the power to assign absolutely, grant licences over and otherwise deal with the patent or design and to give effectual receipts for any consideration for any such assignment, licence or dealing. Any equities in respect of the patent or design may be enforced in the same manner as in respect of any other personal property (section 50, IPA).
**This article was first published in ICLG – Fintech.
ABOUT THE AUTHORS
Christel Sands-Feaste is a highly experienced commercial lawyer with over 24 years of expertise, primarily focused on financial services, securities and investment funds. She serves as Chair of the Financial Services, Securities, Investment Funds and Fintech Practice Groups.
Portia J. Nicholson is a Corporate and Commercial Partner and serves as Chair of the Firm’s Tax practice group. She also serves as Deputy-Chair of the Commercial Transactions and Securities, Investment Funds & FinTech practices groups.
Kamala M. Richardson is an Associate in the Firm’s Private Client & Wealth Management, Financial Services, Securities & Investment Funds, and Commercial practice groups.