The future of Mauritius as a FinTech hub is a promising one, according to Jessica T. Naga, Managing Director, and Darryl Sim, Director, at Digital Associates Limited, with the recent adoption of the Virtual Asset and Initial Token Offering Services Bill. With the FinTech regulatory framework that it is building and its proximity to Africa, Mauritius can grow into an ideal platform to allow FinTech projects related to the continent to thrive.

Over the last couple of decades, Mauritius has gradually transformed itself from a monocrop economy dependent on sugar as its main source of foreign earnings into a competitive, well-diversified and broad-based economy. Following the emergence of financial services in the early 1990s, FinTech has become a key pillar on which the Mauritian Government and industry players are now focusing.

The existing domestic regulatory framework

Fast forwarding to the recent present and looking at the domestic regulatory framework, in September 2018, Mauritius introduced the Regulatory Sandbox Licence (‘RSL’) in a move to enable the development of FinTech in Mauritius. The RSL offers the possibility for an investor to conduct a business activity for which there exists no legal framework, or adequate provisions under existing local legislation, within an enabling environment in Mauritius.

For FinTech projects, i.e. projects using technologically enabled financial innovations resulting in new business models, applications, processes, or products, the RSL will be issued by the Financial Services Commission (‘FSC’) (the integrated regulator in Mauritius for financial services other than banking) or the Central Bank of Mauritius depending on the nature of the project.

In the same month of 2018, the FSC issued a guidance note on recognition of digital assets as an asset-class for investment by Sophisticated and Expert Investors.

In March 2019, Mauritius became the first International Financial Centre globally to offer a dedicated regulatory landscape for the safekeeping of Digital Assets, by creating the Custodian services (digital assets) licence.

In June 2020, the FSC issued detailed guidance notes on Securities Token Offerings (‘STOs’) and Security Token Trading Systems to provide for the implementation of a common set of standards for STO and the licensing of Security Token Trading Systems in Mauritius, thereby formally launching the Security Token Trading Systems licence.

Between 2020/2021, the FSC further launched new licences linked to FinTech related business activities, namely Peer to Peer Lending, Robotic and Artificial Intelligence Enabled Advisory Services and Crowdfunding.

In August 2020, the law was changed in Mauritius to allow the Central Bank of Mauritius to issue Digital Banking licences and, importantly, to allow the Central Bank of Mauritius to issue a digital currency. 

On the 6th of December 2021, the Central Bank of Mauritius issued detailed guidelines for the licensing of Digital Banks in Mauritius; guidelines which contain very practical and technology friendly considerations as regards the operational side, namely allowing such banks: 

• to carry banking business exclusively through digital means or electronically.
• to establish a business relationship solely through digital means or electronically.
• to have a physical office solely for administrative purposes and not to conduct banking business with customers therein.
• to keep and maintain all the data of the digital bank in electronic format.

The international alignments and affiliations

Looking outwards and more internationally, Mauritius entered into a multitude of bi-lateral agreements with Financial Regulators relating specifically to FinTech. 

In September 2018, Mauritius signed a bi-lateral FinTech Cooperation Agreement with the French Financial Services Regulator, the Autorité des Marches Financiers (‘AMF’).

In May 2019, Mauritius signed an amendment to the Memorandum of Understanding with the Malta Financial Services Authority (‘MFSA’) to extend cooperation to FinTech related activities. 

In May 2021, the FSC signed a FinTech Cooperation Agreement with the Kenyan Financial Regulator, the Capital Markets Authority. 
In June 2021, an Innovation Functions Co-operation agreement which includes a referral mechanism for innovative businesses, and which enhances and clearly defines information sharing between these jurisdictions, was signed with the Canadian Securities Administrator. 

Further, Mauritius Regulators (the FSC in 2019 and the Central Bank of Mauritius in February 2021) joined the Global Financial Innovation Network (‘GFIN’). GFIN is the international network of financial regulators and regulated organisations committed to supporting financial innovation in the best interests of consumers.

These aforementioned international Regulator to Regulator bi-lateral agreements and the membership of GFIN will certainly facilitate cross-border operation for Mauritian-based FinTech businesses and will crucially make cross-border monitoring easier.

The Virtual Asset and Initial Token Offering Services Bill becomes law

Looking at the situation as of date, a new bill, the Virtual Asset and Initial Token Offering Services Bill was approved by the Mauritian Parliament on the 10th December 2021, following a period of consultation with the relevant stakeholders. 

This new law adds a new class of licences to the Mauritian regulatory FinTech landscape:

• Virtual Asset Broker-Dealer / Market Maker 
• Virtual Asset Wallet services
• Virtual Asset Custodian
• Virtual Asset Advisory Services
• Virtual Asset Marketplace

This law will regulate most Virtual Assets, defined as digital representations of value that can be digitally traded, transferred, used for payment or for investment purposes.

There are a few exclusions to the application ambit of this new law, namely it does not include digital representations of fiat currencies, securities and other financial assets that are already covered by securities laws in Mauritius or transactions of virtual assets in which a person grants a value as part of an affinity or rewards program, which value cannot be taken from or exchanged with the person for legal tender, bank credit or any virtual asset or a virtual representation of value issued by or on behalf the publisher and used within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform.

Therefore it is not the case that NFTs (non-fungible tokens), ITOs (Initial Token Offerings) and issued Cryptocurrencies are now regulated activity in Mauritius. 

The secret ingredient for the success of Mauritius as a jurisdiction of choice for FinTech in Africa

It is certainly a choice for a jurisdiction to go the highly regulated way in a new and innovative sector and that is what Mauritius has elected to do. It is true that it can be harder, taking longer to go live and is more expensive for innovative businesses to go the regulated way.

Therefore, it is a possible consequence that Mauritius might, with the coming into force of the Virtual Asset and Initial Token Offering Services Bill, only attract more established and funded FinTech businesses as opposed to start-ups, in the areas where full licences exist. At the same time, regulation allows the creation of more sustainable and certain businesses and through oversight by regulators, the protection of end-users. 

The future of Mauritius as a FinTech hub is a promising one. Regulated digital platforms and exchanges will in the future allow the efficient trading (through reduced cost, time, and risk) of every type of security or non-security assets, in digital or tokenised form. 

The pandemic is and will carry on affecting the business world generally and this will inevitably have resulting consequences on the FinTech sector. However, conversely, the pandemic has led to a renewed business case for digitalisation and automation given that those increase efficiency, reduce cost and allow remote access/use.

With the FinTech regulatory framework that it is building and its proximity to Africa, Mauritius can grow into an ideal platform to allow FinTech projects related to the continent to thrive. 

The crucial ingredient for the success of Mauritius as the jurisdiction of choice for FinTech into Africa will lie in the implementation of the aforementioned legal and regulatory framework. A transparent, flexible, and practical application, with the relevant regulators working hand and hand with stakeholders, could transform Mauritius for the better for many years to come…