With recent developments in the financial services space, investors are looking for increasingly sophisticated ways and marketplaces to transact in a digital world – without unnecessarily taking on extra risk.
Let’s look at four initiatives Mauritius is putting in place to position itself as an innovation and fintech hub.
The changing face of the digital marketplace
The introduction of products and services relating to blockchain, cryptocurrencies and initial coin offerings (ICOs) is noticeably changing the face of the digital marketplace. We now have a whole new world of investing and transacting, and this is putting pressure on jurisdictions to amend their regulatory environments to lee[ pace with the changing dynamics.
Fintech products like these are sometimes considered as high risk because they are often not regulated and fall outside the scope of centralized banking institutions. Different regions are dealing with this in different ways.
Countries such as the UK, Singapore and New Zealand have initiated Regulatory Sandbox Licences to help regulate cryptocurrencies with a view to mitigating the risks involved and creating more certainty within the financial services sector.
Japan and Canada are moving ahead and allowing the use of cryptocurrencies as a method of payment, while China and South Korea are raising red flags in dealing with cryptocurrencies.
As part of its journey to be positioned as a fintech hub for Africa, Mauritius is focusing on four key initiatives that provide investors with the perfect platform for growth and discovery in the digital market.
The Mauritius Regulatory Sandbox Licence
A couple of years ago, the government launched a Regulatory Sandbox Licence (RSL) in Mauritius. This licence forms part of the government’s vision to promote creativity and innovation by allowing companies to invest in market-leading projects that don’t have an adequate legal framework (if any) yet. It provides a type of safe space where businesses can test products, services and operating models while ensuring consumers are protected from potential risks.
Following the RSL launch, the government formed the RSL Committee in collaboration with the Ministry of Financial Services and Good Governance, the Bank of Mauritius (BOM), the Financial Services Commission (FSC) and the Economic Development Board.
This committee oversees applications for fintech-related business activities that fall outside the normal regulatory framework. The committee met for the first time on 21 September 2018, chaired by Lord Meghnad Desai, and implemented a clearly defined process for RSL applications.
Cryptocurrencies considered as digital assets
While cryptocurrencies are not currently seen as legal tender in Mauritius, they can possess intrinsic value which, as with assets such as minerals and grain, is linked to supply and demand in the market.
The FSC in Mauritius now officially considers cryptocurrencies as digital assets. A digital asset refers to any text or media that is formatted into a binary source and gives the owner the right to use it – think of photos and movies, for example. Simply put, a digital asset:
- is used as a medium of exchange, unit of account, or store of value
- is not 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.
Vouchers, coupons and similar transactions that can’t be exchanged for legal tender, bank credit or digital assets are not considered digital assets. Nor are things like the virtual poker chips used on online gaming platforms.
Collective investment schemes may invest in cryptocurrencies
Although transactions in cryptocurrencies are unregulated and are considered as high risk, the good news is that the FSC considers digital assets, including cryptocurrencies, as an asset class for investment by the following entities (defined under the Securities Act 2005 and the Securities (Collective Investments Schemes and Close End Fund) Regulations 2008:
- Sophisticated investors
- Expert investors
- Expert funds
- Specialised collective investment schemes
- Professional collective investment schemes
While any investment in digital assets and cryptocurrencies is at your own risk and is not protected by any statutory compensation arrangements in Mauritius, a lot of hard work is being done to create as safe an investment space as possible so investors can take advantage of the innovative benefits digital assets offer.
Centralized know your customer (KYC)
Various developments in the financial services sector have increased the demand for an innovative system, along with a sophisticated platform, to support the needs of banking and non-banking financial institutions and other stakeholders.
Without undermining a robust risk-based approach, the government of Mauritius, through its several institutions, is working on implementing a centralized know your customer (KYC) system to create a balance between the compliance burden of the financial institutions and the stakeholders’ need.
While this centralised system can serve both banking and non-banking financial institutions, a one-size-fits-all approach will not work in a marketplace with varied institutional and customer requirements, so the system aims to strike a sufficient balance between catering for unique needs while providing a standardized and centralized platform.
Looking to invest or incorporate in Mauritius?
Mauritius is focusing on building capabilities and frameworks that will transform the country into a crypto-specialist hub, and offers several advantages to fintechs, traditional financial services institutions and individual investors, including:
- Excellent geographical location in a suitable time zone
- Politically stable with a good legal and anti-money-laundering and counter-terrorism framework
- Government support for innovation to attract investors
- No foreign exchange control
- Presence of international banking institutions
- Mobile banking facilities
- Organisation for Economic Co-operation and Development (OECD) white-listed with a substantially implemented, internationally agreed tax standard
- Large number of professionally qualified accountants, lawyers and IT professionals
To find out more about opportunities in this jurisdiction, contact us.