Mauritius is tightening up its financial regulation in a bid to become a key global market. By Malcolm Moller
The Financial Services Act 2007, the Securities (Amendment) Act 2007 and the Insurance (Amendment) Act 2007 all came into force in Mauritius on 28 September 2007.
The objective of the legislature was to provide an efficient service to the financial markets and, by simplifying processes and procedures, to remove hurdles to investment, to facilitate delivery of services, to achieve international standards in every activity so as to be globally competitive and to modernise the legal framework that governs the non-banking financial services sector.
Accordingly, the Financial Services Act introduces a new conceptual approach to global business. This approach will provide two distinct legal, regulatory and fiscal regimes for Mauritian companies conducting business in Mauritius, and those conducting business outside Mauritius. The Securities Act is intended to improve on the framework established by the Securities Act 2005 and the Insurance Act is to modernise the regulation of insurance business in Mauritius to move toward full compliance with the core principles of the International Association of Insurance Supervisors’ (IAIS) standards.
Financial Services Act 2007
The Financial Services Act is aimed at providing a consolidated framework for regulating global business and financial services. Specifically, it was stated to have three objectives:
– consolidating all the amendments brought to the Financial Services Development Act 2001;
– streamlining and consolidating the entire licensing framework both for domestic and global business; and
– updating the conceptual approach to global business in the light of recommendations made by the IMF/World Bank Financial Sector Assessment Programme.
The Financial Services Act repeals the Financial Services Development Act and the Financial Services Development (Amendment) Act 2005 and provides a uniform system for applying for licences by non-banking institutions and financial service providers. However, an exception is made for insurance licences that are still governed by the Insurance Act. Also, a distinction is drawn between service providers and investors: the latter are not subject to all the requirements of the uniform licensing system. The Financial Services Act confirms the role of the Financial Services Commission (the FSC) as an independent regulator in the field of non-banking financial institutions and finance service providers.
There are noteworthy changes insofar as the concept of global business is concerned. Now in order to qualify for a global business licence (GBL) a company must conduct business outside Mauritius, the test being whether the ultimate purpose of the company is to invest or to provide a service outside Mauritius. However, the test is not intended to be narrow and the impetus is to look for even more substance than was required under the Financial Services Development Act. Further, the list of activities that potentially qualify for GBL1 licences will not be set out exhaustively as under the act.
Companies applying for a GBL1 licence will have the freedom to choose their type of business provided these are neither illegal nor are contrary to public interest. Section 71 of the Financial Services Act now makes it mandatory for all GBL1 companies to be administered by a management company in Mauritius. Insofar as the application for a GBL is concerned, the Financial Services Act has retained the language of the Financial Services Development Act by stating that the application shall be made in accordance with the rules provided for by the FSC Rules.
However, the Financial Services Act makes it a mandatory requirement that an application be accompanied by a business plan or feasibility study setting out the proposed business activity of the applicant (Section 16(1)(a) of the Financial Services Act), and contains particulars of promoters, beneficial owners, controllers and proposed directors in the form that may be prescribed by the FSC Rules. The FSC will be expected to issue ’practice notes’ regularly to inform investors and service providers, who may thus be informed of the requirements for GBL companies and to handle difficulties that arise in the context of implementing the provisions of the Financial Services Act.
Under the repealed Financial Services Development Act 2001, ’global business’ was defined as any one of the activities that was specified in a list of qualifying activities, and that which was being carried on from within Mauritius with persons all of whom are resident outside Mauritius and which is conducted in a currency other than the Mauritius currency or which is carried on by a private company incorporated or one that was registered under the Companies Act 2001, which does not conduct business with persons resident in Mauritius nor conduct any dealings in Mauritius currency and which holds a GBL2. The new conceptual approach adopted by the Financial Services Act rests on a streamlined and more flexible definition which is reflective of business conducted across borders.
In processing an application for a GBL1, the FSC has indicated that it does not propose to take into consideration the citizenship or residence of the promoters or beneficial owners of the company in so far as there is an understanding between two treaty partners that the treaty will not be used for purposes of round-tripping. In such cases, the FSC may impose licensing conditions relating to the re-investment of funds derived from the territory of a treaty partner into that territory.
Following Section 71(1) of the Financial Services Act any ’resident corporation’ that proposes to conduct business outside Mauritius may apply to the FSC for a GBL1 or a GBL2. A resident corporation is defined under Section 71(6) of the act. For the purposes of the act, a resident corporation applying for a GBL1 is a body corporate formed or registered under the Companies Act 2001, a trust, société, or partnership or any body of persons governed by the laws of Mauritius.
However, a resident corporation applying for a GBL2 is, under Section 71(3) of the act, a ’private company’ and must, pursuant to the definition of “resident corporation”, be formed or registered under the Companies Act 2001. Nevertheless, the existing practice of prohibiting a GBL2 company having shareholder or beneficial owner of a person resident in Mauritius has been maintained under the current regime.
Notwithstanding the above, FSC has indicated that under its proposed rules, partnerships governed by laws other than Mauritian law may apply, in specified circumstances, for a GBL1 license.
The Securities Act
Only minor amendments have been made to the Securities Act. The main objective of the act was stated in parliament to be threefold: to broaden the scope of the existing act; to streamline the whole licensing framework for non-bank financial institutions and service providers; and to ensure consistency of the act with the rules and regulations that complement it.
The definition of ’securities’ has been broadened to accommodate a wider range of ’financial instruments’ that may be traded on an exchange. These may now comprise treasury bills, options, futures and derivatives, including derivatives where the underlying assets are commodities. Also, the term ’depository’ has been removed from the phrase ’depository, clearing and settlement’ system, because under the broader scope given to ’securities’ not all securities will have to be deposited while they are being processed for clearing and settlement purposes.
The FSC is given the sole responsibility for entertaining applications for licences under the Securities Act. Finally, insofar as Collective Investment Schemes (CIV) are concerned, the act has shortened the delay from 5 to 3 years during which existing CIVs must conform with the requirements of the act.
The amendments that are set out in the Insurance Act are essentially to enhance the regulatory and supervisory framework for the insurance industry and to provide greater protection to policyholders. The Insurance Act provides for the application of IAIS standards and principles and focuses on specific regulatory issues relating to capital adequacy requirements, solvency, corporate governance and the protection of policyholders.
The Insurance Act now provides that an insurer will no longer be required to seek FSC approval to open a branch in Mauritius or elsewhere or to set up a subsidiary overseas, only a prior notification to the FSC is required. Also, a foreign insurer will no longer be required to furnish the FSC with all documents it lodges with the regulator in its home jurisdiction.
Mauritius’s reputation rests on sound regulation and sufficient oversight to ensure probity and accountability. The purpose of each of the acts is to continue to ensure that the FSC can function effectively as an independent regulator.
Malcolm Moller is managing partner of the Mauritus office of Appleby