The FSC is now a member of ANNA
This upcoming year will bring several changes to the financial sector in Mauritius. It goes without saying that these will be welcome by several parties, including investors since the government has been working to improve Mauritius as a fintech hub; an attractive destination for firms to conduct business in. One of its moves will reinforce the image of Mauritius. On the 28th of December, the Financial Services Commission (FSC) of Mauritius announced that it has become a member of the Association of National Numbering Agencies (ANNA). It had submitted its application, which was approved by the institution on the 2nd of December 2021. What is the Financial Services Commission? First, let’s have a look at what is the FSC to better understand its role. The Financial Services Commission was establishED in 2021 with the intention to strengthen the reliability and safety of the financial sector in Mauritius. Its aims are to: promote the development, fairness, efficiency and transparency of financial institutions and capital markets in Mauritius, suppress crime and malpractices so as to provide protection to members of the public investing in non-banking financial products; and ensure the soundness and stability of the financial system in Mauritius. To put it simply, it is the integrated regulator for non-bank financial services in Mauritius. What are these? They involve all services and products provided by financial firms such as asset management etc. and that contribute to economic growth and development in the country. The sectors regulated by the FSC are insurance, capital markets, funds, global business and pensions. To sum it up, it licenses, regulates, monitors and supervises the conduct of business activities in the sectors other than banking. One of its main functions is to implement appropriate measures to ensure the protection of those using financial services in Mauritius and to increase awareness with regards to the different benefits and risks related to investments. The vision of the FSC is to become “an internationally recognized Financial Supervisor committed to the sustained development of Mauritius as a sound and competitive Financial Services Centre” and it plans to achieve this by meeting globally accepted norms and standards. What is ANNA? The Association of National Numbering Agencies are the various institutions across the world that assign a unique identification code to each new security as it is issued. Its aim is to make the financial world a more efficient, safer and more stable environment for both financial institutions and investors. Present in more than 120 countries, it involves partnerships with central banks, central securities depositories, data vendors, regulators and stock exchanges. ANNA’s mission statement is to proactively promote, implement and maintain standards for financial firms. They aim to make related information available in a uniform and accurate structure for the benefit of the global financial markets as a whole and this is done by providing high quality actionable global ID and reference data and services to stakeholders. This will allow companies to uniquely identify, classify and describe entities and financial instruments. It operates in such a way that it is able to deliver consistent financial standards for its members across the globe. What does this recognition mean for the FSC and for Mauritius? Following the approval of the FSC’s application in December 2021, the firm has become the only National Numbering Agency (NNA) in the country. Now, it pledges to keep upholding the obligations towards ANNA. This means that, henceforth, it will assign International Securities Identification Numbers (ISINs) that deal with securities trading in Mauritius. The ISIN is used in any task related to the administration and trading of securities and other financial instruments. This means that they are mandatory for any financial instrument registered in the country, not just those listed on the Stock Exchange of Mauritius. It should be noted than each ISIN issued requires an issuance fee of $600USD. Nonetheless, the FSC pointed out that only licensed clearing and settlement facilities in Mauritius are authorised to charge such a fee on behalf of the FSC. Moreover, this issuance fee may be subject to revision in the future. The importance of ISINs for financial firms Let’s have a look at ISINs and its importance for financial firms? An International Securities Identification Number is made up of a 12-digit alphanumeric code. Each one of them is uniquely generated for a specific security so that it can be easily identified and tracked across the globe. ISIN is used in the processing of transactions and for recordkeeping and regulatory reporting. Its goal is to reduce delay, mismatches and confusion in global financial markets. Regarded as the defacto standard for trading securities, its use is mandatory for all firms who deal with securities, both locally and internationally. What are the advantages of ISINs? These numbers will improve the regulatory environment in which a financial firm operates. For instance, it increases transparency. The use of these identifiers makes it easier for regulators to supervise the market. Additionally, these numbers imply increased automation, which improves the overall efficiency of the market. As such, these numbers allow firms in Mauritius to operate in a more effective way. Besides more precise administrative control, it ensures increased transparency which enhances security for investors.
The Financial Services Commission releases The Settlement Framework
The Financial Services Commission (“FSC”) has through a Communique on 11 December 2020 published its “Settlement Framework”. The Settlement Framework sets out a means through which timely and proportionate enforcement outcomes can be achieved in appropriate cases. This Framework delivers on a key commitment of the FSC to adopt “Settlement” as part of its enforcement process. Kindly refer to the communique and the guidance notes: https://www.fscmauritius.org/media/94244/communiqu%C3%A9-settlement-framework.pdf https://www.fscmauritius.org/media/94240/settlement-framework.pdf
The FSC issues consultation paper on the regulatory framework for Robotic and Artificial Intelligence Enabled Advisory Services
The Financial Services Commission (FSC) has issued a Consultation Paper in relation to the introduction of a regulatory framework for Robotic and Artificial Intelligence Enabled Advisory Services (hereinafter RAIEAS). RAIEAS was coined in the National Budget of 2019/2020 and the Finance (Miscellaneous Provisions) Act 2020 added RAIEAS as a financial business activity in Schedule 2 of the Financial Services Act requiring a licence from the FSC. The aim of the Consultation Paper, which is inspired from approaches and models implemented by other jurisdictions, is to invite views and comments from relevant professionals, the industry and the public at large. The said Consultation Paper contains a copy of the draft Financial Services (Robotics and Artificial Intelligence Enabled Advisory Services) Rules which the FSC intends to make under section 14 of the Financial Services Act. RAIAES refers to the provision of digital and personalized (discretionary or non-discretionary) investment and portfolio management and advisory services through a fully automated computer program or artificial intelligence enabled algorithms with minimal human intervention. There is in fact no involvement of any individual in the entire advisory process. There may however be elements of human intervention to assist in the non-advisory services like technical support or information technology. This process can be easily distinguished from a traditional investment advisor who uses technological tools to merely assist its human advisers in providing advisory services to its clients. RAIEAS has the potential of yielding numerous benefits both for the end customers and for the intermediaries. However, it also raises some specific challenges and risks which cannot be disregarded. The proposed regulatory framework should therefore cater for necessary safeguards to ensure the sound conduct of such business and at the same time protecting the end customers’ rights. A licensee for RAIEAS must have a minimum unimpaired stated capital of MUR 600,000 and subscribe to a professional indemnity insurance policy against liability for the sum of at least MUR 2 million for any act, error or omission in respect of the conduct of the advisory services. The licensee should establish an office and relevant infrastructure for the carrying out of its services in Mauritius and it shall employ officers with adequate competence, experience and proficiency to discharge its services. The licensee should be managed by a board of directors consisting of a minimum of three directors, one of whom shall be an independent director and a resident of Mauritius. It should have a code of conduct and ethics which will bind all its officers. Besides the implementation of internal controls, risk management and governance policies and procedures, the licensee is expected to ensure the robustness of its computer programs and its artificial intelligence algorithms. It also has to put in place a business continuity and disaster recovery plan. The licensee is further expected to conduct appropriate due diligence on its clients and is required to preserve the integrity and privacy of clients’ information in conformity with data protection laws. For the protection of the clients, the licensee is required to obtain from its clients a declaration to ensure that the clients understand the scope and nature of the RAIEAS together with the associated risks and limitations. The licensee is also expected to ensure that any investment advice given through the platform is suitable for the client. The licensee has to develop its own internal cyber risk management framework. Under the draft rules, a licensee would be prohibited to outsource the key processes and management of its client-facing tools. There are a number of disclosure requirements to enable the client to make an informed decision. As such the licensee is expected to provide clear, fair and non-misleading information to the client on the nature and scope of the services being offered. The licensee is also expected to explain to the client how it determines that these products being offered are suitable and would meet the investment objective of the client and the risks involved. The licensee is required to enter into a service-level agreement with its client before the provision any services to its clients. Moreover, to protect its clients it is required to display in a prominent place and in a visible manner in the service-level agreement , on its website and its platform a statement to the effect that the FSC does not vouch for the correctness of any information or statements published by the licensee on its robotic and/or artificial intelligence interface or platform and that clients engaging the services of the licensee are not protected by any statutory compensation arrangements in the event of the licensee’s failure. The licensee also has record keeping obligations and reporting obligations as well. In addition to submitting its audited financial statements yearly, it shall also submit an independent evaluation report of its systems and controls mechanism prepared in accordance with the best industry practices and standards, at least once every two years or following a material change to its systems and controls.
Highlights on guidelines on fitness and propriety issued by the FSC
The Financial Services Commission (FSC) has issued on 2 October 2020, pursuant to its powers under Section 7(1)(a) of the Financial Services Act 2007 (FSA), its revised “Guidelines on Fitness and Propriety” (Guidelines) in line with the FSC objective to ensure the sound conduct of business in the financial services and global business sectors. The FSC issued a “Circular Letter CL021020 – Guidelines on Fitness and Propriety” on 2 October 2020 which becomes effective as from 01 November 2020. These revised guidelines supersede the Guide on Fitness and Propriety previously issued by the FSC on 9 June 2020. The revised guidelines can be accessed at: https://www.fscmauritius.org/media/85113/guide-to-fitness-propriety-with-pq.pdf Scope The aim of the Guidelines is to clarify the criteria to be taken into account by the FSC to assess the fitness and propriety of an applicant/licensee, including any person authorised, registered or approved under a relevant Act. These Guidelines are not exhaustive, and each case shall be considered on the basis of its own merits. The effective date of the Guidelines is 1 November 2020. Salient features Revision of policies, procedures and controls – Regulated entities are required to reflect the elements of these Guidelines in their internal policies, procedures and controls and apply them in their assessment of persons who manage, control, direct, own or perform key functions in a regulated entity. Scope of application – The scope of application of the guidelines have been widened and extended to additional parties: Any incumbent officer such as the Money Laundering Reporting Officer, the Deputy Money Laundering Reporting Officer and the Compliance Officer; Any representative or agents of the applicant/licensee; Trustees and management committees of occupational pension plans; External and outsourced auditors of regulated entities; The principal representative of a foreign financial institution that is conducting insurance business or business of a financial nature; An insurance agent, broker and sales representative and any such person as may be determined by the FSC. The Fit and Proper Test – Pursuant to the section 20 of the FSA, the FSC considers several factors to assess whether a person is fit and proper. A fit and proper test is initially carried out when an applicant submits an application for a licence or requests any other authorisation from the FSC. This test is then carried out, on an ongoing basis. It has been mentioned in the revised guidelines that a consolidated approach, rather than meeting specific tests, is used in assessing whether a person is fit & proper. The Purpose of Fit and Proper Test – The purpose of the fit and proper test has been extended to include: “to ensure that persons, who are not “fit and proper” to perform functions in relation to a regulated activity, are precluded from doing so, in the public interest”. Responsibilities of the applicant/licensee and the relevant persons subject to the fit and proper test – It is important to note that the onus is on the applicant/licensee and each relevant person to establish that the latter is a “fit and proper” person, as different appointment(s) and designation(s) entail different responsibilities. Furthermore, the applicant/licensee and the relevant person(s) must accordingly, complete the Fit and Proper Person Questionnaire (PQ) and must provide, depending on the nature of the license, authorisation, registration or approval sought, any information that the FSC may require to complete its assessment. Where a PQ has already been filed, the applicant shall indicate in this application that the PQ has been filed and inform the Commission of any material change. Providing false and misleading information to the FSC will lead to criminal prosecutions under the FSA as mentioned in the revised Guidelines. Assessing fitness and propriety – The FSC reserves its regulatory powers to gather any information from any appropriate source on the overall reputation of a person, regardless of whether such information results from the above criteria and factor in its assessment of the person’s “fitness and propriety Fit and Proper Person Questionnaire (PQ) The revised PQ is more comprehensive than the previous version. The declaration part in the PQ has been further amended thereby giving FSC the authorisation to make such enquiries and seek such further information as the FSC thinks appropriate in verifying the information given in the PQ. To also note that, any material changes affecting the completeness of the PQ will have to be notified to the FSC within a 30-day timeline. False and misleading statements to the commission Under the FSA, any person who, in connection with an application for a licence including a Global Business Licence, an authorisation under section 71A or any information submitted in respect of a valid licence (a) make or procure the making of a statement to the FSC which he knows or ought reasonably to know is false or misleading; (b) omit to state any matter to the FSC where he knows or ought reasonably to know that, because of the omission, he is misleading the FSC in a material respect, shall commit an offence and shall on conviction be liable to a fine not exceeding 500,000 rupees and to imprisonment for a term not exceeding 5 years.
FSC GUIDE TO FITNESS AND PROPRIETY
The Financial Services Commission (FSC) of Mauritius has issued a revised guideline on “Fitness and Propriety” on the 29th September 2020. The Guidelines aim at clarifying the criteria to be taken into consideration by the FSC in assessing the “fitness and propriety” of an applicant/licensee which includes their internal policies, procedures and controls and applying them in their assessment of persons who manage, control, direct, own or perform key functions in a regulated entity. You may access the revised guideline on the following link: https://www.fscmauritius.org/media/84924/guide-to-fitness-and-propriety-2020.pdf
The FSC issues Peer to Peer (P2P) Lending Rules
P2P lending has, worldwide, been hailed as an innovative solution that democratises financing. Start-ups and small entrepreneurs have typically relied on bank finance to grow. But they present risks that banks are not always prepared to take — at least not cheaply. Online platforms that connect borrowers directly with investors bypass the problem of getting bank financing. The 2017-2018 Budget announced in its paragraph 127 that the “FSC will set the rules for regulating Fintech activities such as peer-to-peer lending and funding as well as mobile wallet”. In November 2017, the FSC issued draft P2P Lending Rules for consultation. In a communiqué dated 10 November 2017, the FSC explained that the aim of those P2P Rules was to “establish a sound and conducive automated environment or platform for the offer and execution of alternative peer to peer lending, other than bank lending, for the benefits of borrowers and stakeholders in the non-banking sector of Mauritius”. In so doing, the FSC recognised that P2P Lending platforms are an important segment of the Fintech space. P2P Lending as a financial business activity requiring a licence was added to the Second Schedule of the Financial Services Act by the Finance (Miscellaneous Provisions) Act 2020. As a consequence, the FSC published the Financial Services (Peer to Peer Lending) Rules 2020 (hereinafter the “Rules”) in the Government Gazette on 14 August 2020. The Rules are made under section 93 of the Financial Services Act and they came into operation on 15 August 2020. It is apposite to note that the adds. Under the Rules, the P2P operator will facilitate access to finance by matching borrowers and lenders on its online platform . A P2P Lending platform can accept lenders and borrowers, both legal and natural persons. There are no restrictions on the participation of foreign lenders or borrowers on licensed P2P Lending platforms. However, there are lending and borrowing limits which the Rules provide. For instance, a lender who is a natural person, shall not lend more than MUR 1.5M in any 12-month period, whilst for a lender who is a legal person, the limit is MUR 3M. These limits would not apply to sophisticated investors who are lending to borrowers who are not resident in Mauritius, in any other currency than the Mauritian Rupee. Lenders are required to provide a signed risk acknowledgement form in relation to each lending they make. For borrowers, a natural person cannot borrow in excess of MUR 1M, whilst a legal person cannot borrow in excess of MUR 3M through P2P operators. The minimum amount of borrowing through a P2P Operator has been fixed to MUR 50,000. The reimbursement period of lending through a P2P Lending platform shall not exceed 84 months. The funds are made available to the borrower only after the required total funding has been pooled or raised for any project. Under the Rules, a cooling off period of 2 business days is provided to both the borrowers and the lenders during which they may cancel their written agreements without incurring any penalty. Such a cancellation right has to be disclosed by the P2P operators before the agreements are signed. As regards the P2P operator, the Rules provide that it must be incorporated as a company in Mauritius and must have a minimum unimpaired stated capital of MUR 2 million or its equivalent in any other currency. The FSC is empowered under the Rules to prescribe a higher amount of such unimpaired stated capital. The annual licence fees payable to the FSC is USD 2,000 and 0.35% of the gross fees from P2P lending activities. It would seem that a foreign company registered in Mauritius under the Companies Act would not be able to apply for a P2P Lending licence inasmuch as it is not incorporated in Mauritius. Similarly, any other corporate vehicle recognized under the laws of Mauritius would not be eligible to apply to the FSC for such a licence as the Rules restrict such an application to a “body corporate”, which is itself defined as “a company incorporated under the Companies Act”. The P2P operator shall be managed by a board consisting of a minimum of three directors, one of whom shall be an independent director and a resident of Mauritius. The P2P operator shall at all times establish an office and employ staff proportionate to its size, nature and complexity of its business. It also has to put in place all relevant information technology infrastructure for the carrying out of its business activities. It will have to preserve the integrity and privacy of information hosted on its lending platform. It has to obtain the consent of the borrowers to ascertain their credit profiles from a credit information bureau and upon the grant of the funds to a borrower, the P2P operator will have to forthwith provide particulars thereof to the credit information bureau. As of date, the only credit information bureau which has been set up is the Mauritius Credit Information Bureau (MCIB), which has been set up by the Bank of Mauritius. Furthermore, the P2P operator has to put in place a business continuity and disaster recovery plan for its business. The P2P operator is also required to maintain at all times a professional indemnity insurance cover which is commensurate with the nature and scope of its business activities. The P2P operator, as a licensee of the FSC under section 14 of the Financial Services Act, will be subject to all the obligations and responsibilities for putting in place AML/CFT measures. It will also be expected to adopt and maintain adequate internal control policies and procedures which is not limited to the sound management of possible conflicts of interests and the handling of complaints. A local bank or a foreign bank is prevented from being shareholders of a P2P operator, unless the prior approval of the FSC is obtained. At the time of on boarding , the P2P operator is required to carry out due diligences on both lenders and
Industry Updates- Practice notes for Qualified trustees and management companies
On the 31st August 2020 the Financial Services Commission of Mauritius has issued an updated practice notes for qualified trustees and management companies. You may access the updated practice notes as per link below: https://www.fscmauritius.org/media/85051/pn-publication.pdf
Security Token Trading Systems
The Financial Services Commission (FSC) has, on 15 June 2020, issued its guidance notes concerning the implementation of a common set of standards for Security Token Offerings (STO) and the licensing of Security Token Trading Systems in Mauritius in an attempt to position Mauritius as a regional hub of sound reputation in the field of Fintech. The guidance notes also highlight the requirements to comply with Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) laws and codes, data protection laws, and implementation of good market practice for an efficient, transparent and integrated financial market. Why use Security Tokens to raise capital? STOs are seen as lower risk because the securities laws that security tokens have to comply with often enforce transparency and accountability, compared to an Initial Coin Offering (ICO). A security token will also be backed by a real-world asset, which makes it a lot easier to assess whether or not the token is priced fairly in relation to the underlying asset. STO is also more cost-effective than Initial Public Offering (IPO). With IPOs, the companies would typically pay high brokerage and investment banking fees to get access to a deeper investor base. STOs would still need to pay lawyers and advisors, but they offer more direct access to the investment market and, therefore, typically will not have to pay large fees to investment banks or brokerages. The post-offering administration for STOs is also less cumbersome and cheaper than with traditional IPOs. Fractional ownership and the ability to trade 24/7 bring additional liquidity to the market, especially with traditionally illiquid assets, such as scarce paintings, property and collectibles.
Mauritius: P2P lending now has its own specific licence
On 31 August 2020, the Mauritian Financial Services Commission (“FSC”) published the licensing criteria for Peer-to-Peer (“P2P”) lending. Prior to this, P2P Ooperators were operating under the regulatory sandbox licensing. The Financial Services (Peer to Peer Lending) Rules 2020 came into force on 15 August 2020. What is P2P lending? P2P lending is an emerging Fintech practice that enables a person to lend funds through an online portal or electronic platform, whereby a P2P operator facilitates the access to finance by matching borrowers and lenders on its online platform. The three important pillars of P2P lending A platform, operated by a P2P operator that is a corporate body established in Mauritius; A borrower with a detailed project that needs financing; and A lender agreeing to provide funds in its own name. How does P2P lending operate? A P2P operator will consider a request to borrow from any person provided that the funds being sought by the person are applied for to finance a project. The P2P website will prominently disclose a description of the borrowers’ project and funds will be made available to borrowers only after the required total funding has been pooled or raised for any project. This means that if the borrower does not obtain 100% of the funds, it does not get any of the money. Once a lender agrees to provide funds in its own name, the lender and the borrower enter into an agreement through a P2P lending platform operated by a P2P operator. P2P operators must provide a cooling off period of two business days to borrowers and lenders during which they may cancel their written agreements without the imposition of any penalty. Limits and restrictions of P2P lending The borrower The following entities cannot apply for a P2P lending licence: A collective investment scheme and closed-end fund, as defined in the Securities Act 2005; A public listed entity or any of its subsidiaries; A person that proposes to access a P2P lending platform for further lending to other persons; and Any other scheme as may be determined by the FSC. The lender The activities of a lender on a P2P lending platform must exclude deposit taking business, in any form. The P2P operator The P2P operator has no carte blanche in regards to the activities it can undertake on the P2P lending platform. It is restricted from carrying out the following activities in its own name: Deposit taking business, in any form; Lending; and Providing or arranging for any credit enhancement or guarantee. The amount This limit does not apply to sophisticated investors (as defined in the Securities Act 2005) when they lend in any other currency through P2P operators to borrowers that are not resident in Mauritius. It is to be noted that the reimbursement period for the lending through P2P lending platforms must not exceed 84 months. Obligations of the P2P operator There is an exhaustive list of obligations that the P2P operator has to fulfil:
