AML/CFT: Mauritius revises its Fit and Proper Person test
Considering that money laundering and other scandals are becoming rampant everywhere around the world, it is important for jurisdictions to introduce the appropriate measures so that firms operating in their area and investors are protected. This has become more than essential. Following this line, Mauritius has been strengthening its financial sector. One of the measures taken is amendments to the Fit and Proper Person test. On the 2nd of October 2020, the Financial Services Commission (FSC) rolled out its revised “Guidelines on Fitness and Propriety”. This is to ensure that businesses conducted in the financial services and global business sector is done in a sound environment. The guidelines became applicable as from the 1st of November of the same year. What is the Fit and Proper Person test? The Financial Services Authority has listed out the criteria determining whether a person is ‘fit and proper’. This pertains to their “ability to perform the relevant functions properly, efficiently, honestly and fairly” and their “reputation, character, financial integrity and reliability”. To put it simply, they are able to conduct business in an honest and right way. What will be assessed? The financial standing, relevant education, qualifications and experience, reputation, character, financial integrity, reliability and their capacity to perform relevant functions properly, efficiently, honestly and fairly. Who are going to be assessed by the regulatory institution? Besides the ‘person’, who is the applicant, the fit and proper test involves anyone who is, or will be, employed by, or is associated with the person and any representation or agent of the applicant. In the case of the applicant being a corporation, it will look at the officers and any shareholder of the corporation, its related corporations and their officers. A first ‘Fit and Proper Test’ will be conducted when a person, or a firm, submits an application for a licence or requests any other authorisation from the FSC. Following this, the test will be applied on a continuous basis to ensure that the applicant remain ‘fit and proper’ at all times. Why conduct the “Fit and Proper Person” test? What is the purpose of the ‘Fit and Proper Person” test? The FSC has determined several reasons, listed below, for conducting this assessment. It should be noted that the list is non-exhaustive. The test aims to: establish a standard benchmark for licensing and for continuous regulation and supervision of licensees/applicants, encourage high standards of conduct in the market, maintain a high level of confidence and trust amongst those using (Mauritius as a base for their business. This is also applicable to those considering to do so, act as a deterrent to protect the interests of consumers of financial services in the country, promote a business environment that meets acceptable international standards, deter dishonest, incompetent, unskilled or inappropriate operators in Mauritius. deter making an abuse of the Mauritian financial market, and to ensure that persons, who are not “fit and proper” to perform functions in a regulated field of activity, are precluded from doing so, in the public interest. What are some of the amendments in the Guidelines? The guidelines with regards to the ‘Fit and Proper Test’ have been amended to increase the efficiency of the test and to increase the safety of the financial sector in Mauritius. The scope of the ‘Fit and Proper’ test has been extended. Now, besides just the applicant, benefit owners and the controllers of a licence being assessed, the FSC will look at other persons whose involvement will be relevant. Incumbent officers such as the money laundering reporting officer (the “MLRO”), the deputy MLRO and the compliance officer, and the external and outsourced auditors of regulated entities will also be assessed to determine whether they are ‘fit and proper’. According to the previous guide, the FSC has the right to make this assessment to determine whether an individual is capable enough to take over, or hold, a particular or a proposed position. To generate an impact on the long-term, the guidelines have been revised to give the FSC more power to keep reviewing whether the person is still meeting the conditions involved in the ‘fit and proper’ test. This means that the process is a continuous one and the entity may have its licence revoked following the result of the test. The FSC has also reviewed the questionnaire of the ‘Fit and Proper’ test. It is now more extensive than the previous version. Now, the following documents must be provided for the test: previous residential addresses, occupation, and regulatory approvals or licences held (with dates of approvals) for the ten preceding years, information concerning the principal bank account. For instance, the opening date of said account, and affiliations with politically exposed persons, and several new confirmations, to know if the applicant acts under the directions of others. Applicants have to notify the FSC in the event of changes within 30 days. Moreover, the FSC has the authorisation to make further enquiries and seek any information it deems appropriate while conducting the assessment and verifying the information disclosed in the questionnaire.
Mauritius Listed on EU High Risk List – Why not to Panic!
News that Mauritius was added to the EU list of high-risk third countries on 7 May 2020 has understandably caused much consternation amongst fund managers who have fund structures and investment holding vehicles domiciled in Mauritius. While this is certainly a cause of concern, the following should be borne in mind: This is not new. The Financial Action Task Force (FATF), the global inter-governmental body responsible for setting best practice standards and enhancing the implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other similar threats to the integrity international financial systems, placed Mauritius on its ‘grey list’ on 21 February 2020 (being ‘Jurisdictions under Increased Monitoring’). FATF “grey listing” is afforded to jurisdictions identified as having strategic deficiencies in their anti-money laundering and combating financing of terrorism (AML/CFT) regimes. The FATF has, as a result, placed Mauritius under increased monitoring. It is the FATF listing that has led to Mauritius being placed on the EU high risk list. The EU listing is not yet in force. The list is not final and needs to be submitted to the European Parliament and the EU Council of Ministers for approval, following which it will then become effective on 1 October 2020. Mauritius is committed to addressing the issue. Following the FATF grey listing, Mauritius immediately made a high-level political commitment to continue to work with the FATF to swiftly strengthen the effectiveness of its AML/CFT regime. It is either compliant or largely compliant with 35 out of the 40 FATF recommendations and it has already met the FAFT expectations in respect of the ‘Big Six Recommendations’. All indications are that Mauritius will address the FATF concerns swiftly in order to be removed from the FATF grey list (and consequently the EU list) as quickly as possible. There is a plan. The FATF Action Plan being implemented by Mauritius includes: (i) demonstrating that the supervisors of its global business sector implement risk-based supervision; (ii) ensuring access to accurate basic and beneficial ownership information by competent authorities in a timely manner; (iii) demonstrating that its law enforcement agencies have capacity to conduct money laundering investigations (including parallel financial investigations and complex cases); (iv) implementing a risk based approach for supervision of its non-profit organisation sector to prevent abuse for Terrorist Financing purposes, and (v) demonstrating the adequate implementation of targeted financial sanctions through outreach and supervision. In a communique from the Mauritian Ministry of Financial Services and Good Governance on 9 May this year, Mauritius reiterated its commitment to implementing the FATF Action Plan as soon as possible and a first progress report has already been sent to the FATF. It does not mean you have to move existing fund structures and companies. Once the list becomes effective, and for as long as the Mauritius is on the list, then, in terms of EU regulations, certain categories of EU financial services institution, credit institutions, banks, insurance companies, investment firms, trust and company service providers and the like will be required to apply enhanced customer due diligence with respect to business relationships or transactions involving Mauritius. Furthermore, persons and entities deploying EU funding or budgetary guarantees shall be prohibited from entering into new or renewed operations with entities incorporated or established in Mauritius, except when an action is physically implemented in Mauritius. Accordingly, while EU development finance institutions should continue to meet existing obligations to Mauritian-domiciled funds, they will avoid investing in any new Mauritian fund structures (or through Mauritian entities) until the AML/CFT compliance issues are resolved. Fund managers looking to raise capital from EU development finance institutions in the short-term may need to house such commitments in parallel funds in other acceptable jurisdictions (such as South Africa). Fund managers should also pay attention to “excuse” provisions inside letters with all investors when investing into or through Mauritian entities (not just EU investors given the FATF listing applies more broadly).
Memorandum of Cooperation
On 26 August 2020, the Bank of Mauritius has signed a Memorandum of Cooperation (‘Memorandum’) with local Anti-Money Laundering and Combatting the Financing of Terrorism (‘AML/CFT’) Supervisors. The Memorandum aims to facilitate policy formulation, exchange of information and operational coordination to effectively combat money laundering and the financing of terrorism and proliferation. For optimal implementation of the AML/CFT regime, an interagency Coordination Committee will be set up as per the Memorandum. The parties to the Memorandum are the Bank of Mauritius, the Attorney General’s Office, the Financial Services Commission, the Financial Intelligence Unit, the Registrar of Companies, the Gambling Regulatory Authority, the Registration of Associations, and the Mauritius Institute of Professional Accountants. The Memorandum is in line with the Financial Action Task Force’s standards and the imperatives of the National Strategy for Combatting Money Laundering and the Financing of Terrorism and Proliferation 2019-2022.
