Mauritius is consistently proving a pace setter in terms of progressive legislations in support of startups in Africa. To this effect, the Financial Services Commission of Mauritius (“FSC”) has issued the Financial Services (Crowdfunding) Rules 2021 in line with its strategy to sustain the growth of the Fintech ecosystem within the Mauritius International Financial Centre.
Chief Executive of FSC, Dhanesswurnath Thakoor
“The introduction of these Rules on investment-based Crowdfunding represents another key regulatory milestone for the FSC. It, in fact, demonstrates the fruitful collaboration between the regulator and the industry with the objective of enabling the provision of new financial products/services for the ultimate interests of our stakeholders. It shall complement the Peer-to-Peer Lending Rules that was issued last year. Both frameworks will foster innovation and facilitate access to finance to SMEs,” said Chief Executive of FSC, Dhanesswurnath Thakoor.
Without a crowdfunding licence given by the Commission, no one may run a crowdfunding platform in Mauritius under the new rules.
Under the new rules, there is no restriction on the nature and type of businesses that may raise funds through a crowdfunding portal. However, companies listed on the Mauritius stock exchange are barred from seeking funding on a crowdfunding platform.
Again, a crowdfunding portal is permitted to handle funds on behalf of investors, provided that it opens a non-interest bearing account with a commercial bank duly licensed by the Bank of Mauritius, under the new rules.
The rules takes effect from 4th September, 2021.
What Are The Requirements For Obtaining The New Crowdfunding License?
To be able to obtain the new crowdfunding license:
A crowdfunding operator must be a Mauritius-based legal entity.
The crowdfunding platform’s registered office and principal place of business must both be in Mauritius.
A crowdfunding operator must also have a minimum paid up capital of $47k (MUR 2 million).
The crowdfunding operator must also observe standard corporate governance practices, including ensuring that it is managed by a board of directors composed of a minimum of 3 directors, of which at least — (i) 30 per cent shall be independent directors; and (ii) one shall be resident in Mauritius.
What Is The Highest Investable Amount?
Under the new rules, a crowdfunding operator must ensure that a retail investor does not invest more than MUR 350,000 ($8.2k) on the platform in a 12-month period. However, expert investors are not subject to any investment limits.
In any case, a company seeking money through the crowdfunding platform may only offer to raise MUR 15 million ($350k) over a three-year period.
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions. He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance. He is also an award-winning writer
Mauritius has always been at the forefront of promoting crypto-backed assets in Africa. The country’s Financial Services Commission (FSC), the integrated regulator for the non-bank financial services sector of Mauritius, has announced a framework aimed at ensuring more regulatory certainty with regards to security token trading systems in the country. The regulatory body stated that the move will enable the implementation of a common set of standards for the licensing of Security Token Trading Systems in Mauritius. The FSC released a 15 — page document outlining the new standards coupled with the press release on Monday.
Dhanesswurnath Thakoor, the Chief Executive of the FSC
“As part of our core strategy, the FSC is aiming at positioning Mauritius as a regional hub of sound repute in the field of Fintech. The publication of a Guidance Note on Security Tokens Offering (STO) and Security Tokens Trading Systems is a another stepping stone in building an open and transparent regulatory regime for Fintech in Mauritius. We already have a growing interest for these specific licences and are expecting to receive several applications in the upcoming months,’’ Dhanesswurnath Thakoor, the Chief Executive of the FSC stated about the new guidelines.
Here Is What You Need To Know
Security Token Trading Systems Are Now Eligible To Be Issued Licenses In Mauritius
This is record-breaking in a continent that is highly skeptical of cryptocurriences and blockchain technology. Under Section 7.1 of the new regulation, any person wishing to establish, maintain or operate a system for the trading of Security Tokens in Mauritius shall apply for a Trading Securities System licence. The implication of this is that all trading in security tokens in Mauritius would require a license, going forward.
However, such token trading companies must at all times, be required to have and maintain a minimum unimpaired capital of 35 million rupees or an equivalent amount ($880,000).That is, the trading system must all times have $880,000 in its accounts to be considered credit worthy. Under the new regulation, the capital must be held in real currency (fiat) as against cryptocurrencies in a licensed Mauritian bank.
The token trading system must also at all times be managed and controlled from Mauritius. The implication of this is that the new trading system would not be available to investors wishing to register their securities token trading companies in Mauritius, while having their central administration and management abroad. Therefore, such companies would be regarded as resident in Mauritius for purposes of taxation; and it should be noted that in Mauritius, they are subject to corporate tax at 15%. Tax advantages for such companies also include that there is no capital gains tax and also no withholding tax on dividends, interest, and royalties paid or estate duties on their earnings.
Are There Penalties For Not Obtaining License To Operate?
The regulation did not specifically state the penalties for non-obtaining of licenses, but under Section 22 of the country’s Securities Act 2005 (as amended), in view of which the present regulation was made, any person who fails to obtain such licenses shall commit an offence and shall, on conviction, be liable to a fine not exceeding one million rupees ($25,000) together with imprisonment for a term not exceeding 8 years.
What Are Expected Of A Token Trading System Under The New Regulation.
Under the new regulation, token trading systems must:
Ensure strict adherence to all applicable laws, regulations and codes relating to Money Laundering and Terrorist Financing.
Comply with the Data Protection Laws applicable in Mauritius, including seeking the approval of the data subject before sending personal data outside Mauritius or keeping personal data on servers outside Mauritius.
Engage a registered custodian for the custody of their digital assets.
Get clearance certificates from Mauritius’ Data Protection Office as to the capacity of its IT infrastructure and must also demonstrate adequate office premises.
Appointment of a person to act as Chief Technology Officer (“CTO”) or any other relevant designation and who shall be responsible for establishing, maintaining and overseeing the internal cybersecurity architecture of the company.
Publish trading data daily and submit it for review by Financial Services Commission.
Be managed by a board composed of a minimum of 3 directors, of which at least — (i) 30 per cent shall be independent directors; and (ii) one shall be resident in Mauritius. Hence, this gives foreigners a chance of floating an entity in Mauritius, as long as they have an on-ground, a director who would oversee the daily operations of the company.
What Are The Major Weaknesses Of The New Regulation?
One fundamental weakness of the new legislation is that it does not adequately protect investors trading on the systems. The regulation specifically states that any investment in Digital Assets is at the investors own risks and that they are not protected by any statutory compensation arrangements in Mauritius.
From all indications, this looks like the government of Mauritius is only attempting to attach legitimacy to the securities systems trading on tokens, and may not be interested in fully regulating the market; although they still retain the power to revoke licenses and investigate fraudulent practices. This may be a way of encouraging the highly volatile tokens market to thrive.
In Simple Terms What Does This Whole Regulation Mean For Ordinary Mauritians?
Basically, the new regime allows a new security token trading systems to become eligible for an FSC license in Mauritius. Now, a business can put a security token up for sale in an offering, an “STO,” as well as operate a trading house in Mauritius.
This is how a security token trading works. Image source: thebitcoin.pub
Unlike the IPO process, where funds are raised by companies through issuing shares to accredited investors, with STOs, tokens that represent a share of an underlying asset are issued on the blockchain to accredited investors. These can be shares of a company but (because of tokenization) can really be of any asset that is expected to turn a profit, including a share in the ownership of a property, fine art, investment funds, etc.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions. He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance. He is also an award-winning writer
