Mauritius' Financial Service Commission (FSC), the integrated regulator for non-banking financial services and global business, has increasingly and explicitly articulated its support for fintech-related initiatives to be championed out of Mauritius. Following through on this sentiment, a series of regulatory developments are positioning this forward-thinking island jurisdiction as a fintech hub embracing blockchain and other disruptive technology.
Increasingly, regulators are under pressure to accept that the advent of innovative solutions is a reality that will impact on the way people do business. Rather than resist what many see as ‘inevitable', the government of Mauritius has recognised that the digital revolution presents an opportunity for smaller economies like that of Mauritius to leapfrog traditional industrial development. Innovation, in the form of artificial intelligence and fintech, including blockchain, is seen as a means to increase private investment and employment in Mauritius.
Mauritius is not the only African country to see the potential of digitisation but it is in the interesting position of acting as a gateway for investment into and out of other African countries. It also ranks consistently as first in Africa for ease of doing business and good governance. And last year Mauritius topped The Economist intelligence unit's Democracy Index.
The challenge lies in navigating the balance between embracing innovation whilst ensuring financial stability, confidence and protection.
A raft of regulations
In 2018, two new licensable activities were introduced:
- The Custodian Services (Digital Asset) Licence; and
- The Digital Asset Marketplace Licence
The introduction of licences in Mauritius for digital assets custodian services and a digital asset marketplace could be beneficial for a variety of international blockchain companies looking for a robust jurisdiction from which to operate.
Subsequently, the FSC has issued guidance notes on both the recognition of digital assets, including cryptocurrencies, for investment by sophisticated and expert investors and, more recently, a guidance note on Securities Token Offerings (STOs).
Whilst Mauritius has not recognised cryptocurrencies as legal tender, they do have "value" and are akin to physical commodities. However, being largely unregulated, they are subject to extreme volatility (in relation to fiat currency) and are therefore seen as high risk. But they may constitute an asset class for sophisticated and expert investors and certain investment funds. Note that no statutory compensation arrangements are in place - due to the risk.
The FSC has provided for STOs to be issued, as a method of raising funds from investors, under the Securities Act 2005.
Recognising that disruptive technology usually requires "outside the box" thinking, Mauritius also provides for a Regulatory Sandbox Licence.
The sandbox licence aims to provide entrepreneurs with a means of conducting business activities for innovative projects for which there is no (or an inadequate) legal or regulatory framework in Mauritius. It offers a "sandbox" space to test promising projects within set parameters which act as a temporary framework to, in essence, develop a working prototype. Following a testing period and upon demonstration of applicability, compliance and benefits of a project, permanent regulations can follow for the new industries and, in the process, establish new worldwide best practices.
To bolster this opportunity, Mauritius has set up a National Regulatory Sandbox Licence Committee to expand on the concept and consider all issues relating to sandbox licences, specifically for fintech activities.
To address some of the risks inherent in the nature of digital assets, particularly cyber-security and anti-money laundering issues, the FSC has been tasked with ensuring applicants have appropriate cyber-security and cyber-resilience policies and capabilities in place. Furthermore, the regulatory framework against money-laundering and terrorist financing for both banking and non-banking financial services is being harmonised and updated in line with evolving developments in fintech, including guidelines for investment in cryptocurrencies.
Undoubtedly, challenges remain - which is in line with the nature of disruptive technology. However, Mauritius' vision is placing the jurisdiction as both a first mover and an ideal partner for Africa's fintech evolution. For the entrepreneur that is prepared to navigate the uncertainty, Mauritius should be a serious consideration.
Graham Patrick, senior client manager at Maitland, is based in Mauritius