Denial. Anger. Bargaining. Depression. Acceptance.

These emotions, doctors tell us, are the five stages of grief.

And the people working in Bermuda’s international business community — “Bermuda Inc” — have experienced most of these emotions since the gunboat of European Union economic substance appeared on our horizon, with consequential legislation passing through Parliament just before Christmas.

“Denial” and “Anger” were first out of the gate, of course — just as the cycle dictates. Denial and Anger.

Denial, from some, that an increase in required presence for Bermuda Inc will be a bad thing. Deniers suggest legislative change could mean more jobs for Bermuda. Well ... it could. But will jobs gained through enhanced presence outweigh the job losses caused by companies that may leave Bermuda as a result?

Anger, that the EU is forcing upon Bermuda the requirement for more physical business presence when the union is not demanding the same of its European members.

“Do as I say — not as I do” has been the EU’s mantra thus far. EU demands have focused upon 13 international financial centres, including Bermuda. Yet the EU has elected not to hold its own members to the same standards. Why?

Anger that, for now at least, there is no level playing field, no singular global standard — there is only a heavy burden imposed by the EU upon the offshore world.

Anger also at politicians: in an extremely perceptive article this month, former One Bermuda Alliance senator Vic Ball expressed his personal views that “our political leaders have failed grossly to prepare us for exactly how [EU substance legislation] is bound to affect every Bermudian in a substantial way”.

Anger and Denial.

So what does this all mean — and how will this affect us?

In simple terms, the 13,000 or so companies and other business entities in Bermuda will, by the summer of 2019 at the latest, face a stark choice.

Either companies must comply with EU substance legislation, by ensuring an adequate presence on the island, or those businesses will move elsewhere.

Then there’s stage three of grief: “Bargaining”.

In many respects, the bargaining is largely behind us — although some may not yet appreciate what has happened.

Yes, there is a transition period of six months to ensure relevant businesses implement substance. But the EU has already forced international financial centres to show their hands. Most centres, including Bermuda, have already passed domestic legislation on substance.

As a Member of the Opposition, I might be expected to blame the Progressive Labour Party government for being late to the bargaining stage. Being fair, Bermuda faced precious little choice but to comply with EU demands.

This was a rare occasion where the interests of our insurers and reinsurers — “Bermuda Re” — did not align with the rest of Bermuda Inc. Given the crucial importance of Bermuda Re to our economy, our Parliament was keen to keep Bermuda off the EU “blacklist”.

We shall learn in a few short months whether Parliament succeeded or whether Bermuda is blacklisted by the EU despite our legislative efforts.

Last week, KPMG hosted a forum on how the substance legislation will affect Bermuda. No matter what view you may take on the merits of increased substance, one thing is certain: this will demonstrably change our island. The next 18 to 24 months will involve considerable uncertainty.

One of the speakers at the forum, Mike Penrose, predicted we will soon see “tidying up [of Bermuda’s substance legislation] to prevent jurisdictional arbitrage”. By which he means that there is now a risk that the differences between the legislation passed in the various offshore jurisdictions may be leveraged against each other to encourage businesses to move. To prevent this, a harmonisation of offshore substance laws needs to occur.

Because of the way the EU played its hand in the “negotiations”, each offshore jurisdiction was compelled to prepare its own domestic legislation in isolation. This proved a masterful “divide and conquer” strategy by the EU. Offshore jurisdictions were left (largely) uninformed of what concessions other jurisdictions might make. They were bidding against themselves. Perhaps unsurprisingly, the EU adopted an unbending approach to its demands.

If Bermuda hopes to minimise the impact, then we must take swift steps to harmonise our domestic legislation with the legislation of other international financial centres to ensure Bermuda remains competitive.

At the KPMG forum, the mood was trending towards “stage four” of the cycle: Depression. Contrasting Bermuda’s legislation with other offshore jurisdictions reveals significant differences. But has Bermuda conceded too much? Or, when the EU blacklist is announced, will our island have been sensible to set the bar high?

Depression: that the regulatory ground is shifting beneath our feet at a time when we so desperately need to grow our faltering economy. Last week one business leader, who is largely supportive of the PLP government, shared privately his opinion of what the Government needed most to achieve economic growth. The word he used was “courage”. But the steps most needed may not be comfortable ones for the PLP to take, given its historic positions.

Consider also the PLP’s proposals at present for economic growth. Cryptocurrency and fintech are seedlings. If they do develop, they will surely have slow growth. They may yet wither.

The jury is out on crypto. Some say better to try something than nothing. Others, rightly, underscore the reputational risk and potential for damage to both Bermuda Re and Bermuda Inc if something goes wrong. It is said that fools rush in where angels fear to tread. The footwork around cryptocurrency needs to be very careful indeed.

Fintech — buzzy shorthand for “financial technology” — is a different concept to crypto. But fintech is also amorphous and indefinite — how do you grasp it properly without it slipping through the fingers?

And if we set no other rule for ourselves, we must nonetheless abide by this one: Bermuda’s reputation is sacrosanct.

Take for example Malta’s recent effort to rebrand as “Blockchain Island”. If you did not see the negative television coverage Malta recently received on 60 Minutes — and elsewhere — then you should. Remember all those memorandums of understanding the PLP government was rapidly signing with “blockchainers” in 2018? Many of them selected Malta instead. After the criticism on 60 Minutes, has Malta benefited?

Now to the final stage of grief: “Acceptance”. What does acceptance actually look like for Bermuda?

The truth is that it is too soon to tell. Some have forecast the departure of thousands of companies, impacting upon the jobs at local businesses that support those companies. Others have rightly observed that those international businesses that stay will likely enhance their local presence. This may, and probably will, cause an uptick in jobs with those companies. But will those new jobs be the salmon swimming upstream against the flow of departures?

Here is my take on Acceptance. I will not be the first, or last, to trot out the time-worn cliché of making lemonade from lemons. But to juice our economy, we must implement immigration and tax incentives.

To generate wealth, Bermuda must do all it can to attract wealth generators.

Wealth generators who bring with them foreign capital.

Wealth generators who spend their wealth within our economy for the benefit of Bermuda and Bermudians.

Wealth generators who generate new businesses and create new Bermudian jobs.

Sure, there may be a benefit in the latest sexy dot-com moving to our island, but it is far simpler to encourage expansion in our existing sectors. We must strive to “grow what you know”.

One of Bermuda’s home-grown success stories is the folks at Orbis: one of the world’s leading investment managers, based right here in Hamilton. What might Bermuda’s economy look like if we could gain even two or three more businesses such as Orbis? And what would it take for those new businesses to move to our shores?

Acceptance of grief necessarily means you are prepared to move forward. For Bermuda to move forward from the impact of economic substance, some tough decisions will be needed from the PLP government.

Gaining more businesses such as Orbis will require considerable immigration and tax incentives. Note the approach already taken by the Cayman Islands: Cayman now rivals Bermuda with a population of 61,000. Cayman was only half our size in 1995.

Our fledgeling Minister of Finance, Curtis Dickinson, is, like me, brand new to politics — he is learning on the job. To his credit, he appears to be a fast learner. And so he must be given the challenges we face.

The finance minister, and the Government, must grapple with this new reality. The PLP has the opportunity to chart a bold course on immigration reform. This is needed now, more than ever, to help spur economic growth. We face a future where enhanced substance for Bermuda Inc is the new normal.

Let us hope that 2019 will see the “courage” so desperately needed from the Government.

• Scott Pearman is the Shadow Minister for Legal Affairs and the MP for Paget East (Constituency 22)