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
