5 ways Mauritius enhanced its AML/CFT framework for financial services in the last year

This article summarises the main legislative changes that have been introduced since the grey-listing of Mauritius in March 2020.

1. New legislation

The Anti-Money Laundering and Combatting the Financing of Terrorism (Miscellaneous Provisions) Act 2020 (the “AML/CFT Act”) was enacted in July 2020. Some of the main changes it brought include the following.

  • Persons seeking to apply for the incorporation or registration of companies, foundations, limited liability partnerships and limited partnerships must disclose information on their beneficial owners, particularly on their controllers, to their respective regulator. Companies must, on request, disclose any changes to their beneficial ownership to the Registrar of Companies. In addition, those details on beneficial ownership, the company name, proof of incorporation, the legal form and status, the registered office address, basic regulating powers, the register of directors, and the register of shareholders must be disclosed to the Commissioner of Policy, the Mauritius Revenue Authority, the Financial Services Commission (the “FSC”), the Asset Recovery Investigative Division and any public body responsible to combat money laundering or terrorist financing upon request.

 

  • The AML/CFT Act 2020 confers on the Bank of Mauritius (the “BOM”) and the Financial Services Commission (the “FSC”) powers to carry out on-site inspections and examinations. The frequency and intensity of an examination conducted by a regulator must be determined on the basis of inter alia (i) money laundering risks and policies, (ii) internal controls and procedures associated with the licensee, (iii) money laundering risks or terrorism financing risks present in Mauritius; and the characteristics of its licensees and the degree of discretion allowed to those licensees under the risk-based approached implemented by the BOM and the FSC.

 

  • The Integrity Reporting Services and the Counterterrorism Unit are introduced as regulators under the Financial Intelligence and Anti-Money Laundering Act 2002 (the “FIAMLA 2002”).

 

  • The Counterterrorism Unit and the Financial Intelligence Unit communicate information between themselves concerning suspected proceeds of crime and alleged money laundering offences and communicates concerning such matters.

 

  • Auditors fall under the purview of the FIAMLA 2002 and are required to furnish information requested by the director of the FIU.

 

  • Collective investment schemes and closed-ended funds authorised under the Securities Act 2005 and reporting issuers registered under the Securities Act 2005 which do not hold an activity licence for a licensable activity but whose securities are listed on the Official Market of the Stock Exchange of Mauritius or the Development and Enterprise Market do not require the prior approval of the FSC for any issue or transfer of non-voting shares.

 

2. Fit and Proper Person Test

The FSC Guidelines on Fitness and Propriety (the “Guide”) came into effect on 01 November 2020 and superseded the previous version amended in June 2020.

When the FSC considers an application for the issue of a licence, it determines whether the applicant, its controllers and beneficial owners are ‘fit and proper’, having regard to the financial standing, education, qualification, experience, ability, reputation, character, financial integrity and reliability.

The Guide extends the scope of application of the ‘fit and proper’ test by also assessing incumbent officers such as the money laundering reporting officer (the “MLRO”), the deputy MLRO and the compliance officer, and the external and outsourced auditors of regulated entities.

In assessing whether a person is ‘fit and proper’, the FSC takes into account:

  • honesty, integrity, diligence, fairness, reputation and good character. Factors considered include inter alia any prohibitions to carry on business in a jurisdiction and disqualifications; past complaints, convictions, investigations, enforcement or disciplinary actions for fraud or misrepresentation in a jurisdiction; any suspensions, cancellations, or revocations of past licences; and whether efficient internal controls and procedures are implemented;
  • competence and capability. For example, the FSC will consider, in respect of individuals, qualifications, experience and performance and in respect of corporations, whether adequate systems, controls, IT infrastructure, record-keeping and AML/CFT procedures are in place to provide efficient and reliable service; and
  • financial soundness, such as the ability to meet liabilities as they become due, ensuring adequate control over financial risks on a continuing basis, and past records of bankruptcy or insolvency in other jurisdictions.

Whereas the previous Guide mentioned the FSC’s right to reassess the ‘fit and proper’ nature of a person to hold a proposed or current position, the revised version goes a step further in stating that the FSC has the power to review whether a person continues to meet the ‘fit and proper’ test to maintain the entity’s licence.

Moreover, the fit and proper person questionnaire is more extensive that the previous version. Previous residential addresses, occupation, and regulatory approvals or licences held (with dates of approvals) for the ten preceding years, information concerning the principal bank account (such as the date of opening of that account), affiliations with politically exposed persons, and several new confirmations (e.g. whether the person acts on the directions or instructions of other persons) must be provided. The signatory further authorises the FSC to make enquiries and seek further information as it thinks appropriate in verifying the information in the questionnaire, and gives an undertaking to notify the FSC of material changes within thirty days.

 

3. Regulatory approval for all issues or transfers of shares or interest

The Financial Services Act 2007 imposes a general obligation to seek the prior approval of the FSC for any issue or transfer of shares, or legal or beneficial interest in a licensee (other than the holder of a global business licence or an authorised company).  Transfers of less than 5% were exempt, unless the transfer results in a change of control in the licensee.

The Financial Services (Exemption from Approval of Controllers and Beneficial Owners) Rules 2017 (the “2017 Rules”) created another exemption whereby issues or transfers involving shares which do not carry voting rights did not require the FSC’s approval.

On 22 October 2020, the 2017 Rules were revoked by the Financial Services (Exemption from Approval of Controllers and Beneficial Owners) (Revocation) Rules 2020, and in effect the previous position is reinstated. The FSC’s prior approval becomes therefore mandatory again for all issues or transfers of shares, or legal or beneficial interest (irrespective of whether they carry voting rights or not) of more than 5%.

 

4. AML/CFT Handbook

The FSC issued the Anti-Money Laundering and Countering the Financing of Terrorism Handbook (the “Handbook”), designed to assist financial institutions in adopting a more effective, risk-based and outcome-focused approach to AML/CFT and to comply with the requirements of existing AML/CFT laws.

The Handbook supplements the Code on the Prevention of Money Laundering and Terrorist Financing (the “Code”) adopted in March 2012, and substantially develops the contents of the Code in more detail. The Handbook sets out more detailed scenarios and recommendations. Examples include the recording of internal and external disclosures, and factors and tips to be considered when scrutinising customers’ unusual activity.

 

5. The repeal of the FSC Code on the Prevention of Money Laundering and Terrorist Financing

This Code was repealed by a circular dated 06 November 2020. The circular stated that the Code would be repealed until the issuance of any additional enforceable AML/CFT requirements.

It is apposite to note that the repeal of the Code does not affect any obligations or liability incurred, any previous operations effected, any regulatory actions already taken or any investigation carried out under the repealed Code.

The FSC may still take regulatory or disciplinary actions for breaches of the Code that occurred on or before the date of issue of the circular.

Tania Li

Partner