Insight 13 July 2020

FinTech in Mauritius

The rapid evolution of technology through innovations such as Artificial Intelligence and blockchain has proved to be one the greatest disruption in the global financial sector over the past years.

The improved client experience in accessing financial products through timely information, has increased efficiency and reduced cost making FinTech an essential block in the global financial system. The cross-over of technology with the global financial products has created a hard-to-crack challenge – matching the space and flexibility required to foster innovation with the highly regulated environment of the traditional financial products.

Mauritius as a forward-looking International Financial Centre has recognised the importance of offering a safe and conducive platform for the promoters and clients of FinTech products globally. In 2018, Mauritius setup a 'Fintech and Innovation-Driven Financial Services Regulatory Committee' to elaborate the regulatory framework for the development of the FinTech industry in Mauritius. One of the keystone achievements of the Committee was to place Mauritius as the first jurisdiction in the world to offer a regulated framework for the custody of Digital Assets.”

Varounen Goinden Director, Head of Business Development – Mauritius & India

Mauritius has continued on its path to regulatory innovations so as to establish itself as an aspiring leader in the Fintech industry. We are pleased to bring through this paper, a synopsis of the current regulatory framework in Mauritius for FinTech.

Digital Assets an asset class

Through a guidance note issued in September 2018, the Financial Services Commission (FSC) recognised that Digital assets may constitute an asset class for non-retail investors and certain type of investment funds in Mauritius (essentially funds not accepting retails investors).

A Digital Asset is considered as any token in electronic or binary form, which is representative of either the holder’s access rights to a service or ownership of an asset. A Digital Asset, in this respect, includes a digital representation of value which:

  • Is used as a medium of exchange, unit of account, or store of value which is not a legal tender, even if it is denominated in legal tender
  • Represents assets such as debt or equity in the promoter
  • Provides access to a blockchain-based application, service or product

A Digital Asset excludes

  • Any transaction in which a business, as part of an affinity or reward programme, grants value which cannot be exchanged for legal tender, bank credit or any Digital Asset
  • A digital representation of value issued for use within an online gaming platform

Mauritius offer investors a regulated space for investment funds to invest into Digital Assets, including crypto currencies. Please find a link to the guidance note here.

The Digital Assets Custodian

The FSC has taken a bold leap forward through the introduction of a licence to act as custody for digital assets. The Digital Custodian licencee provides the necessary technology to ensure that client has a secured and independent platform to safekeep their digital assets. The Financial Services (Custodian Services (Digital Asset)) Rules 2019 (Rules) were issued on 6 March 2019 to that effect.

  • The Custodian shall have an office in Mauritius from which it shall perform its core functions along with a representative in Mauritius who shall be an officer of sufficiently senior status and knowledgeable in the operations.
  • The Custodian shall, at all times, have and maintain a minimum stated unimpaired capital which is the higher of – (a) 35 million Mauritian rupees or an equivalent amount (US$ 1 million approx.); or (b) an amount representing six months’ operating expenses.
  • The Custodian shall set up and maintain, at all times, a risk management framework to enable it to effectively develop and implement strategies, policies, procedures and controls to manage its operational risks.
  • The Custodian shall put in place a redundancy system to ensure business continuity in the event that.
    • the equipment and software used to perform core functions are not available from the main supplier.
    • the primary staff assigned to perform a non-automated core function is unavailable.
  • The Custodian shall cause its custody systems and processes to be tested on a quarterly basis on matters such as penetration testing, vulnerability scans, wallet integrity audits, key and seed generation procedures, complete transaction audit to ensure compliance with protocols, suspicious transaction handling and migration of storage devices including cold to hot storage and vice versa.
  • Ensuring that the necessary processes are in place for the Key and Seed Generation such as generation of mnemonic back-up phrase, proper entropy procedures, availability of an air-gap machine as well as storage on an encrypted, password-secured device.

The availability of a strong regulatory framework for Digital Custodians effectively create a safe and regulated space for the conduct of FinTech activities in Mauritius. Please find a link to The Financial Services (Custodian Services (Digital Asset)) Rules 2019 (Rules) here.

The Securities Token Offering

Securities Tokens are classified as securities under Mauritian regulations (alike to instruments such as shares, debentures, derivatives, amongst others). Such Security Tokens would be represented in digital format and may constitute share, debenture, derivative or a unit in a Fund.

The FSC has issued a guideline in April 2019 in relation to a Securities Token Offer (STO). STO means the issue of Securities Tokens, as a method of raising funds from investors, in exchange for the ownership or economic rights in relation to assets. Such offering shall be subject to the Securities Act (including the requirements for a prospectus).

The issuer of the STO shall ensure that it is properly regulated and that any STO has been appropriately approved by the FSC, however, no prior approval is required from the FSC when such offers are made to sophisticated investors (non-retail investors) and professional funds (non-retail funds).

The FSC has expressly allowed Reporting Issuers, Expert Funds or Professional Collective Investment Schemes to issue STOs.

The Securities Token Trading Systems

The FSC has clarified in June 2020 that they will licence Securities Token Trading Systems (STTS).

An STTS is a platform that is designed for the trading of Securities Tokens and hence have unique features such as automatic clearing on a T+0 basis and direct placing of trades by clients.

In issuing the licence, the FSC would take into consideration the matters included in the STTS’s rules such as type of Security Tokens, onboarding process, listing process and requirements, order execution rules, safekeeping procedures, reporting and publication, BCP rules, AML-CFT rules amongst others. The cybersecurity procedures and IT audits are also key aspects which would be assessed by the FSC prior to granting the licence.

The STTS shall also be required to have and maintain a minimum stated unimpaired capital of 35 million Mauritian rupees or an equivalent amount as well as subscribe to an adequate professional indemnity insurance policy which shall indemnify the STSS, its employees and any person acting on its behalf against liability for any act, error or omission in the conduct of its operations.

They would also be required comply with the relevant and applicable Principles for Financial Market Infrastructures (FMIs) issued by the Committee on Payments and Market Infrastructures (CPMI) of the International Organisation of Securities Commissions (IOSCO).

The STTS licencee is also required to be controlled and managed from Mauritius and will be required to have at least three directors comprising of 30% independent directors and at least one resident director. The STTS licencee is also expected to appoint a Chief Technology Officer and will need to develop and apply proper safeguards to ensure that its systems and networks are fully protected, consequently limiting or containing the impact of a possible cybersecurity breach. Please find a link to the guidance note here.

The Regulatory Sandbox Licence

The Regulatory Sandbox licence (RSL) recognise the dynamism in which the FinTech industry evolves.

Subject to approval, the RSL allows an investor to develop innovative business activities, including FinTech, for which no regulatory or legal framework exists in Mauritius. The RSL regime is spearheaded by the Economic Development Board in Mauritius and the latter acts as a coordinator with the different agencies in Mauritius (including the FSC and the Bank of Mauritius).

The RSL offers the opportunity to innovative FinTech promoters ahead of the regulatory curve to operate through a bespoke set of terms and conditions, even in the absence of a formal licensing framework.

Tax Incentives

It is also worthy to note that the Government is granting an eight-year tax holiday to newly set-up companies that are engaged in innovation-driven activities on income derived from their intellectual property assets developed in Mauritius.

How can we assist?

  • Assistance in the legal, tax and regulatory requirements in Mauritius
  • Close support in acquiring the relevant licences in Mauritius
  • Setting up your Company
  • Sourcing the necessary human resource and local infrastructure

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