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Steps forward by the Mauritius IFC in an era of global changes – an interview by the Chief Executive of the Financial Services Commission

Insight 31 May 2021

Steps forward by the Mauritius IFC in an era of global changes – an interview by the Chief Executive of the Financial Services Commission

As published in the Business Magazine, an interview with Dhanesswurnath Thakoor, Chief Executive of the Mauritius Financial Services Commission.

The Made in America Tax Plan provides for the introduction of an overall global minimum tax for multinationals which are using low-tax jurisdictions for their cross-border investments.

Tax is not the only motivating factor for investors who prefer the Mauritius jurisdiction. There are numerous factors which have contributed, over the years, to position the Mauritius International Financial Centre as a jurisdiction of choice. Our business enabling environment provides clarity for investors and allows for cost efficiency and quality of businesses. The availability of our highly qualified professionals and the various array of financial services and products have equally positioned Mauritius as an attractive business hub.

I also wish to highlight that Mauritius' taxation measures have been assessed as non-harmful by the OECD Forum on Harmful Tax Practices. Mauritius has been assessed as compliant with the good governance tax principles of the European Union in October 2019 and is not a tax haven.

This measure has recently been announced by the Biden Administration. At this stage, we do not have full details of this proposal and on its implementation. It is true that if such measure is voted, it will affect the jurisdiction to some extent. In this context, diverse policy measures will have to be implemented with the introduction of innovative products to increase our competitiveness. At the level of the FSC, we are currently working on the introduction of Variable Capital Companies and we are also revamping of the Special Purpose Fund regime to expand the accessibility of products across the world and ease access to new markets.

In the meantime, a Technical Team at the FSC is closely monitoring this proposed measure and is currently evaluating its impact on the Global Business sector in Mauritius. In addition, there is a national technical committee working on this matter (amongst others) with all relevant stakeholders including representatives of the FSC, the office of the Solicitor General, the Ministry of Finance, Economic Planning and Development and the Mauritius Revenue Authority, amongst others.

Our figures show that as at end of February 2021, that were 2,065 GBCs having their finances sourced from the United States (US), and this represents 17% of the total lives GBCs.

The US is the largest contributor of FDI flows in Mauritius. As at 30 June 2020, the value of FDI-Inward from US stood at USD 63.9 Bn (i.e., around 20% of the total FDI flows into Mauritius).

The OECD/G20 Inclusive Framework on BEPS has been established so that relevant countries and jurisdictions, including developing economies, can participate on the same level playing field in the development of standards on issues related to BEPS. In parallel, they will participate in the review and monitoring of the implementation of the BEPS project.

The members have developed a Work Program which aims to provide, by 2020, long-term mutually-agreed solutions to the fiscal challenges raised by the digital economy. It will analyse:

  • under the first pillar, potential solutions for distributing tax rights between jurisdictions; and
  • under the second pillar, the design of a proper system to ensure that multinational companies pay a minimum level of income tax based on profits

The objective is to address the remaining issues among those identified by the OECD/G20 BEPS project. In that respect, I am of view that Mauritius will gain in joining countries which will resist this measure and defend its sovereignty.

As the U.S. threat becomes clearer, Mauritius is stepping up efforts to get off the European Union's blacklist. We know that the local authorities have already submitted their third Progress report to the FATF.

About one year ago, during an interview given to your Magazine, I mentioned that our priority, at the FSC remains exiting the FATF Grey list as soon as possible. At this time, for the FSC, I can say that the Action Items under our purview have been completed. We have completed our first cycle of on-site supervision which required us to make 350 inspections. We have now rolled out our next supervision cycle. We have also taken necessary enforcement actions and imposed monetary penalties where required to those entities that were not compliant to regulations. In most cases we have completed the action items ahead of time and I am hopeful that the FATF will give positive consideration to our work. However, FATF has an established calendar and will act accordingly.

The EU blacklisting together with the COVID-19 pandemic has had adverse impacts on the Global Business sector in Mauritius. We have noted a contraction in the number of newly licensed GBCs. As a matter of fact, the lowest figure of new licences issued were recorded at the peak of COVID-19 crisis during the second quarter of 2020.

In addition, we have also noted a drop in the value of FDI inward held by EU countries for the six months ending June 2020.

According to the latest Moody's data, offshore deposits constitute 54% of the banking sector's deposit base. The deposits held by GBCs in domestic banks are roughly equivalent to the GDP of Mauritius. Because of the significance of these deposits, a close monitoring and assessment is carried out by the Technical Team at the FSC in collaboration with the Bank of Mauritius. The findings are, in this respect, published every six months in the Monetary and Financial Stability Reports of the Central Bank.

Since the revision of the tax treaty with India, Mauritius has been repositioning itself on the African market. While the number of GBC structures created from Mauritius for investment into Africa is clearly on the rise, the volume of investment remains relatively average at around $1 billion.

You have highlighted recent figures provided by Moody’s on the Banking System in Mauritius. At the level of the FSC, based on our figures which have been compiled as per IMF standards, we have observed, over the past five years, a consistent increase in the number of GBCs targeting Africa. As at end of December 2020, we have had an increase of 7% (in terms of numbers) compared to December 2019.

With the impact of the COVID-19 pandemic, we would have expected a significant decrease. However, as at 30 June 2020, value of investment in Africa held by GBC 1s has remained at par (compared to end of December 2019). It is also noted that as at end of June 2020, the total value of investment in Africa through GBCs stood at USD 41.625 Bn (compared to USD 41.646 Bn as at end December 2019). This shows that there is a possibility of growth in Africa once the current issues (namely COVID-19 and FATF grey-listing) are gradually tackled.

There is greater synergy between the regulators, i.e. the FSC and the Bank of Mauritius and with the Financial Intelligence Unit.

Are we moving in the right direction?

The three institutions have indeed reinforced their existing collaboration further to the signature of a tripartite Memorandum of Understanding (MoU) by the FSC, the Bank of Mauritius (BoM) and the Financial Intelligence Unit (FIU) on 19 September 2018.

Similarly, a Memorandum of Cooperation (MoC) was signed on 26 August 2020 with local Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT) Supervisors. The signatories to the MoC are: the BoM, the Attorney General’s Office, the FSC, the FIU, the Registrar of Companies, the Gambling Regulatory Authority, the Registration of Association, and the Mauritius Institute of Professional Accountants.

An Interagency Coordination Committee (ICC) was further established on 26 August 2020 as per the MoC for optimal implementation of the AML/CFT regime under the Chairmanship of the Governor of Bank of Mauritius. The objective of the MoC is to assist in policy formulation, exchange of information and operational coordination to effectively combat money laundering and the financing of terrorism and proliferation. This initiative reinforces effective cooperation and coordination in the implementation of FATF standards and aligns with the National Strategy for Combatting Money Laundering and the Financing of Terrorism and Proliferation 2019-2022.

Regulation affects the financial services industry in various ways, but the specific impact depends on the nature of the regulation. The FSC always strives to ensure that the increased time and effort needed by businesses to ensure that the new regulations are being followed correctly, are borne in mind. However, regulations undoubtedly benefit the financial services industry as a whole in the long term.

In recent times, regulations have been designed to provide greater scope for innovation for e.g., in the areas of Fintech, green and blue investments, as well as, in addressing the multiple financial scandals involving large multinationals by requiring greater accountability of senior management for the accuracy of their financial statements, and for ensuring that internal controls are established to prevent future fraud and money laundering. Whilst implementing these regulations have a cost implication for businesses, they give more protection to people investing in financial services, which increases investor confidence and improves overall corporate investment confidence.

Regulation as a method of reducing harm to consumers and facilitating soundness and stability is therefore at the core of any fit for purpose regime. The FSC is conscious and endeavours to ensure that regulation is formulated and applied in a manner that limits the extent of any damage and does not result in undue costs for businesses or the slowing down of efficient practices, but in turn promotes the elimination of harmful practices.

Furthermore, to ensure the right balance between regulation and business facilitation, the FSC regularly consults stakeholders on important matters affecting the jurisdiction and issues which may have impact on stakeholders and/or their business. Consultation is therefore a vital part of the FSC's Stakeholder Engagement Policy, and its purpose is to gather views and comments so that the ultimate decisions taken have onboarded all relevant information and arguments received.

There is today a need to diversify our financial offerings by proposing more sophisticated products and services such as green bonds or private equity.

The COVID-19 pandemic has brought us to a crossroad and as we look towards the future, we will need long-term integrated strategies that prioritise green, resilient and inclusive development. There is indeed the need to diversify our products offering by engaging into more specialised products and services such as green bonds.

The FSC, as regulator, plays a central role in the implementation of a framework conducive to the growth of sustainable finance. In this respect, the Commission aims at supporting all stakeholders in this transition by establishing the necessary ecosystem to enable green, inclusive and sustained growth. We also want to position the Mauritius jurisdiction in Africa as a financial centre anchored in sustainable finance.

The FSC has, in this endeavour and in line with budget announcements made in 2019, renewed its commitment towards the greening of the Mauritian and African financial sector by signing the Marrakech Pledge in September 2019.

The FSC is also a member of the technical committee comprising representatives of the Bank of Mauritius, the Stock Exchange of Mauritius, the Ministry of Financial Services and Good Governance as well as the Standard Chartered Bank (Mauritius) Limited, set up to work on the development of a domestic sustainable bonds market in Mauritius in line with budget measures announced in 2020/2021 to establish a framework for Blue and Green bonds.

The FSC is also launching new products. We are currently working on the introduction of the Variable Capital Companies to further enhance the competitiveness of the financial services sector. We are also revamping of the Special Purpose Fund regime to expand the accessibility of products across the world and ease access to new markets as I have mentioned earlier.

Speaking of sectors that need to be put on track, there is also FinTech. We know that crowdlending is particularly growing in Mauritius, as well as, mobile payment solutions and we will be part of the cryptocurrency revolution.

The financial services industry is today undergoing rapid and far-reaching transformation, underpinned by new and emerging technologies, and whereby regulators are globally called upon to implement new regulatory responses and approaches. Our policymakers are confidently putting efforts together for capitalising on the potentials of Fintech as a new pillar for the future growth.

The FSC has been a pioneer amongst its peers in the African region and has spearheaded a comprehensive regulation innovation agenda since 2018, following the establishment and recommendations of a high-level Fintech and Innovation-Driven Financial Services Regulatory Committee.

The Commission has implemented new and effective regulatory frameworks for a range of innovative financial products/services such as peer-to-peer lending, custody of digital assets, securities token offerings, and investments into digital assets by expert, professional, specialised funds or investors respectively.

The FSC has also issued a Consultation Paper on the Regulatory Framework for Crowdfunding. We are confident that a regulatory framework on crowdfunding will contribute to shape and improve access to finance for individuals, entrepreneurs, micro-enterprises, as well as, Small and Medium Enterprises (“SMEs”). With crowdfunding being conducted in a regulated landscape, investors will be encouraged to partake, through small investments, to the growth of SMEs, thus bolstering entrepreneurial spirit in the country.

In addition, the regulatory frameworks for robotic and artificial intelligence-enabled advisory services, fintech service providers (including Regtech entities) and investment-based crowdfunding services will, in addition, be released shortly.

Digital technologies will continue to create new opportunities for both start-ups and licensed entities to offer a more diversified range of financial products and services, thereby leveraging the competitive advantage of the Mauritius jurisdiction in the region. The FSC, as a key enabler, will continue to establish the appropriate regulatory ecosystem for these entities to expand their business opportunities to support the potential benefits of technological developments to fruition, whilst fundamentally focusing its policy actions to minimise the scope for regulatory arbitrage.

The FSC will also intensify its collaboration with stakeholders of the Fintech industry in Mauritius to position the jurisdiction as an attractive regional Fintech Hub in line with Government’s vision. Furthermore, the FSC, through its membership to the Global Financial Innovation Network, will contribute, at international level, in the promotion of joint policy work and the sharing of expertise on emerging technologies and business models with its fellow regulatory counterparts.

The FSC has published its guidelines on the private pension sector to better support the transition to the Defined Contribution scheme.

The set of Guidelines published by the FSC specifies that a sponsoring employer is encouraged to continue its defined benefit scheme, to its best ability, for providing pension benefits to the employees participating in the scheme. Given that sponsors of private pension schemes are considering and resolving to change their defined benefit plans due to financial constraints which have been exacerbated by the Covid-19 pandemic, the FSC is getting applications in this respect.

The mandate of the FSC with regard to any trend or change impacting existing private pension schemes is to ensure that the interests of members and beneficiaries of pension schemes are protected, while simultaneously ensuring that views of all stakeholders are taken into consideration to maintain a healthy and stable private pensions industry.

The Guidelines are therefore meant to provide a robust and clear regulatory framework within which the transition of private pension schemes from defined benefit to defined contribution can take place, whilst ensuring maximum transparency and disclosure to members and beneficiaries who are affected by this transition.

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