Dhanesswurnath Thakoor, Chief Executive of the Financial Services Commission (FSC) talks to Investor’s Mag about the paradigm shift in the financial services sector with the advent of the digital era. He also gives an overview of FSC’s activities in the medium term.
Featured in Investor’s Mag, 21th Edition, June 22 – Aug 22
How is FSC keeping pace on the regulatory front with the fast-evolving technologies in the financial services sector?
The Financial Services Commission (FSC) has constantly kept itself abreast of the technological advances worldwide and explored their impacts on the deliveries of financial services to consumers/investors or society at large, leading to the establishment of several innovative and impactful regulatory frameworks. To achieve this, the FSC has adopted a planned approach.
Back in 2018, we already had the blueprint for financial services, in which Fintech was one of the main pillars and for which we set up a Regulatory Sandbox Licence (RSL) Committee, providing space for testing activities. The RSL gave us some international weight, credibility, exposure, and experience. We pushed a number of applications, and some have graduated from the sandbox to become real-life implementations, such as Peer-to-Peer lending, crowdfunding, and others. Following the amendment to the Financial Services Act 2007 in 2021, the FSC Mauritius is now empowered to issue Regulatory Sandbox Authorisations for Fintech activities pertaining to the non-banking financial services sector.
Then followed in February 2022 the proclamation of the Virtual Asset and Initial Token Offering Services Act 2021 (VAITOS Act 2021). The VAITOS Act 2021 sets out a comprehensive legislative framework to regulate the business activities of virtual assets service providers and initial token offerings. It has been developed inter alia according to international standards established by the Financial Action Task Force (FATF) to manage, mitigate, and prevent anti-money laundering and counter the financing of terrorism risks associated with these emerging and innovative business activities.
Internally, we have laid much emphasis on the digitalisation of the FSC internal processes to bring efficiency. In this connection, we put in place the FSC One Platform last year, which is a digital portal for our licencees to interact with us in real-time. It allows online licensing of all our activities with the main capability of tracking the status of your applications. It is fully interactive and supports data mining and big data analysis. This streamlines the process and has improved our turnaround times massively. Firstly, from over a month to license a fund, we have now cut it down to 15 days. Secondly, the investor needs not to resubmit any information that the commission already possesses. If your company’s directorship is live from another transaction, that information is automatically applied to your new application through the concept of “Known to the Commission”.
Going forward, the FSC will leverage on blockchain or distributed ledger analytic tools, as recommended by the FATF, to enhance its investigative capabilities in relation to monitoring any potentially illicit virtual asset transactions in/from the Mauritian jurisdiction. We have also introduced bespoke rules for robotic and artificial intelligence-enabled advisory services.
Can you tell us more about the Virtual Asset and initial token offering services legislative framework?
The VAITOS Act 2021, proclaimed in February 2022, is a modern and innovative piece of legislation which was introduced in the context of increased awareness, monitoring and/or prevention of money laundering and terrorism financing risks within the virtual assets space. It is applied to any virtual asset service provider and to any issuer of initial token offerings that carries out its business activities in or from Mauritius.
Mauritius, as an international financial centre and growing Fintech hub, is amongst the first countries in the Eastern and Southern African region which has adopted such comprehensive legislation on virtual assets and initial token services. This new legislation is closely aligned with the Fintech vision of the Commission which is, to promote and diversify the range of products/services within the non-banking financial services sector in Mauritius.
By “virtual asset,” we mean – a digital representation of value that may be digitally traded or transferred and may be used for payment or investment purposes; but does not include a digital representation of fiat currencies, securities, and other financial assets that fall under the purview of the Securities Act. Whilst an Initial Token Offering (“ITO”) is an offer for sale to the public of a Virtual Token in exchange for fiat currency or another Virtual Asset. ITO is a means of raising funds for projects through innovative and digital platforms.
“Mauritius, as an international financial centre and growing Fintech hub, is amongst the first countries in the Eastern and Southern African region…”Dhanesswurnath Thakoor | Chief Executive | Financial Services Commission
Under the VAITOS Act 2021, the FSC is responsible for regulating and supervising virtual asset service providers and issuers of initial token offerings. Pursuant to this law, the Commission has embarked on a series of awareness campaigns in the form of communiqués, self-explanatory FAQs and participation in panel discussions for its stakeholders and the general public on the new business opportunities as well as the associated risks in dealings in virtual assets.
Since February this year, the FSC has established the Anti-Money Laundering and Combatting the Financing of Terrorism (“AML/CFT”) Guidance Notes for Virtual Asset Service Providers (“VASPs”) and Issuers of Initial Token Offerings (“IITOs”) in line with the requirements of international standards, as set out by the FATF under Recommendation 15. In this endeavour, industry partners have played an instrumental role, and this document will indeed guide and support virtual asset service providers and issuers of initial token offerings in ensuring compliance with the law in their conduct of business in the Mauritius International Financial Centre (MIFC).
A dedicated telephone line has also been set up at the FSC with a view to provide assistance to queries from interested applicants and the general public. Furthermore, applications for a licence or registration under the VAITOS Act can be made online through the FSC One Platform.
What’s the scope for such activities in Mauritius?
We believe that there is great potential for such activities in Mauritius. The future of the financial services sector will be virtually oriented and will increasingly comprise of a mix of virtual and traditional services.
The development of the VAITOS Act 2021 has given rise to a regulated framework for intermediation within the virtual assets space/industry in Mauritius. The different classes of licences for virtual asset service providers are effectively listed in the relevant Schedule of the Act. These include the provision of virtual asset services with respect to brokerage, custody, advisory and market places (or exchanges).
At the level of the FSC, considerable interests from local and international promoters have been received for such types of licences or registrations under the VAITOS Act 2021. The Commission is thus confident that this will be a game-changer and further assist with the diversification agenda for the benefit of the financial services industry in Mauritius.
The FSC is committed to work and partner with its industry stakeholders to ensure a sustainable development of the virtual asset industry in Mauritius going forward.
“The development of the VAITOS Act 2021 has given rise to a regulated framework for intermediation within the virtual assets space/industry in Mauritius.”Dhanesswurnath Thakoor | Chief Executive | Financial Services Commission
The Variable Capital Company Act has also been recently introduced. What is a VCC and what types of funds can be setup as a VCC?
An investor has a wide choice of financial services and investment products that entities licensed by the FSC provides. This range from insurance products to investment funds, portfolio management, asset management and Fintech services.
The investment fund segment has the biggest number of licensees (around 1,000). An investor can invest its money in a wide variety of available investment funds, including open-ended fund (known as Collective Investment Schemes) and closed-end fund. The CIS/CEF can be retail funds or those targeting sophisticated investors such as Expert Fund, Professional CIS and Special Purpose Fund.
The introduction of the Variable Capital Company (VCC) Bill recently in the National Assembly is deemed as an efficient structure for Fund promoters who wish to set up several investment funds in Mauritius.
A VCC is a specific type of company that Investment Fund Promoter can use to set up different sub-funds and Special Purpose Vehicles (SPV) under one structure. The VCC has several advantages, including economies of scale in terms of operative expenditures. For example, instead of having different Board of Directors for different Funds, it will have one Board of Directors for different sub-fund. A VCC also offers flexibility to Fund promoters, including the payment of dividends out of capital and the possibility of setting up different categories of Fund under one structure. In addition, a VCC offers legal certainty in terms of segregation of assets/liabilities of different sub-funds and SPVs. Moreover, the sub-funds of a VCC are eligible for the partial tax exemption regime.
Where do you see the Mauritius IFC in 10 years’ time?
The Mauritius IFC is well-positioned to be a vibrant sector, a pioneer worldwide with a more diversified innovative and sustainable financial products and services that will ultimately generate further Foreign Direct Investment flows into the economy. Mauritius will also be fulfilling its role as a Fintech Hub for Africa and the rest of the world and will evolve into the Fintech base followed by the emergence of a new generation of products that are virtual and crypto enabled. Last but not least, the MIFC will be attracting players of excellence in the area of crypto, and digital assets and the engine of growth will be driven towards these areas.