Saturday, May 25

The adoption of blockchain technology and use of cryptocurrency is going up and has gained huge momentum since a couple of years ago. The obvious solutions that both provide cannot be ignored from an ease-of-transaction perspective to helping in financial inclusion. The emergence and adoption of this new technology and means of digital payment surprised a lot of people, including Governments and Regulators who had to quickly react to design and implement regulatory frameworks to attempt to regulate and mitigate any money laundering risks associated with the use of the technology. Naturally, the need for compliance expertise boomed and with the anticipated legislative and regulatory landscape that will be put in place in the near future, we can confidently say that this is just the beginning.

The Mauritius Virtual Asset and Initial Token Offering Services Act 2021 (“the Act”)

While the Act came into force recently in the island, some initiatives were already being taken locally years before that. The Financial Services Commission (“FSC”), the regulator in Mauritius for Non-Banking Financial businesses, came forward with some meaningful steps which culminated with the enactment of the Act.

September 2018

The FSC issues a Guidance Note on the Recognition of Digital Assets as an asset-class for investment by Sophisticated and Expert Investors. Cryptocurrencies were recognised as a form of ‘Digital Asset’ and an asset-class for investment by Expert investors.

April 2019

The FSC issues a Guidance Note to further explain that regulatory approach pertaining to Security Token Offerings. It was outlined that ‘Security tokens’ are securities as defined in the Securities Act represented in digital format.

March 2019

Financial Services (Custodian services (digital asset)) Rules 2019 came into force. This Rule regulates any person carrying out custodian services for digital assets. This includes safekeeping of digital assets and operations arising directly from it.

June 2020

The FSC issues a Guidance Note to provide for the implementation of a common set of standards for Security Token Offerings (“STO”) and the licensing of Security Token Trading Systems in Mauritius

Following the coming into force of the Act, the FSC further issued an AML/CFT Guidance Notes for Virtual Asset Service Providers and Issuers of Initial Token Offerings. It is worth noting that the different steps taken by the Mauritian Government and the FSC helped to properly define the legal and regulatory whereabouts of cryptocurrency and digital assets in Mauritius. This approach was decisive in as much as it provided the local market and financial services professionals with time to get up to speed with what was happening on the international stage and paved the way for best possible crypto-friendly environment for international players. 

Coming to the Act, from the outset it can be described as a comprehensive one. To start with, it is important to understand that the Act applies to Virtual Asset Service Providers and issuers of initial token offerings  (“VASP”) which carry out their business activity in or from Mauritius. This will however exclude some assets such as digital representation of fiat currencies, securities and other financial assets or specific activities for example a person who provides ancillary services or products, as specified in the Third Schedule of the Act, to a virtual asset service provider. The Act also provides for different licenses for Virtual Asset Service Providers depending on the specific business activity that they intend to provide in or from Mauritius.

Class of license Business Activity
Class ‘M’ – Virtual Asset Broke Dealer – Exchange between virtual assets and fiat currencies; or
– Exchange between one or more forms of virtual assets
Class ‘O’ – Virtual Asset Wallet Services – Transfer of Virtual Asset
Class ‘R’ – Virtual Asset Custodian – Safekeeping of virtual assets or instruments enabling control over virtual assets
– Administration of virtual assets or instruments enabling control over virtual assets
Class ‘I’ – Virtual Asset Advisory Services – Participation in and provision of financial services related to an issuer’s offer and/or sale of virtual assets
Virtual Asset Market Place – A virtual asset exchange

 

The piece of legislation includes specific responsibilities of licensees with regards to protection of client assets and prevention of market abuse, which is, in itself, a distinct advantage compared to other jurisdictions in the region. The Act should be read in conjunction with other applicable Mauritius legislations, including but not limited to the Financial Intelligence and Anti-Money Laundering Act 2002 (“FIAMLA”) and the Data Protection Act 2017 (“DPA”). The FIAMLA is the main law in Mauritius to combat offences of Money Laundering and Terrorism Financing while the DPA governs the processing of personal information of natural persons in or from Mauritius. This further highlights the aim of Mauritius to provide an adequate ecosystem for operations of VASPs and at the same time maintain investors and customers confidence and protection.

Crypto-Compliance

As much as virtual assets, including cryptocurrency, came with remarkable technology advancements and breakthrough solutions for financial inclusion, we have to recognise the challenges and risks as well. Put it simple – cryto-compliance is ensuring compliance with regards to legislations applicable to business activities and/or services being provided pertaining to cryptocurrencies. 

Crypto-Compliance Challenges

One of the main challenges comes from the fact that many jurisdictions have either not yet implemented a legal and regulatory framework for pertaining to cryptocurrency, or they have one which is still at its early stages. This often leads to confusions regarding regulatory requirements, the exact type of activities that is authorised and difficult correspondences with regulators. Additionally, there can be hurdles pertaining to cross border services where for instance an entity involved in the crypto-business in one jurisdiction sets up a branch or subsidiary in another jurisdiction. Difficulties may arise mainly because of differences in compliance requirements and regulatory standards across jurisdictions which may not be aligned. 

Another interesting challenge concerns the application of Anti-Money Laundering and Combating Terrorism Financing and Proliferation Financing (“AML/CFT”) laws, regulations and standards. The emergence of virtual assets brought, unfortunately, opportunities for criminals in their aim to launder proceeds of criminal activities. It can be difficult for professionals evolving in traditional finance and not having exposure to crypto-compliance to, for example identify source of funds when, at a stage, funds have been exchanged from fiat to cryptocurrency and back. Other means of obscuring the provenance of funds is by making use of mixers, a service which mixes identifiable streams of cryptocurrency with others making it very difficult to trace back to its origins. This is where it is important to ensure that all employees receive adequate training to level-up their technical and practical skills.

 

About Scentia Consulting Ltd

Scentia Consulting is a compliance consultancy firm operating from Mauritius. We provide services relating to AML/CFT, Data Protection, FATCA, CRS, Crypto-Compliance and Regulatory Compliance. We are recognised for our detailed, tailor-made and hands-on approach to different compliance-related areas to better assist our clients.

Contact Details

E :info@scentiaconsulting.net
W :www.scentiaconsulting.net

Shayne Brasse, Our Director

Shayne has been approved by regulators in Mauritius, the United Arab Emirates and Luxembourg for compliance roles at board and senior management level. He has previously managed a leading compliance consultancy firm in Mauritius before spending some time in Dubai where he was a Senior GRC Consultant and acting as outsourced Compliance Officer and MLRO for several financial institutions authorised by the DFSA. Shayne was also director on two investment funds domiciled and regulated in Luxembourg where he was responsible to oversee compliance. Shayne has extensive experience in several jurisdictions in AML/CFT, Data Protection, FATCA, CRS and Regulatory compliance among others.

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