The Virtual Asset and Initial Token Offering Services Act 2021 (the “Act”), passed by the National Assembly on 10 December 2021 and gazetted on 16 December 2021, empowers the Financial Services Commission (the “FSC”) to regulate and supervise virtual asset service providers (“VASPs”) and issuers of initial token offerings (issuers of “ITOs”), and enhance the status of Mauritius financial sector as a jurisdiction of highest global standards and to improve its service offerings.
The Act also stems from recommendation 15 of the Financial Action Task Force, requiring VASPs and issuers of ITOs to be regulated in respect of anti-money laundering and countering the financing of terrorism. As such, the Act provides for a regulatory framework for new and developing activities regarding virtual assets and initial token offerings in Mauritius and for a safeguard against money laundering and financing of terrorism associated with virtual assets.
Consequently, virtual assets are now fully integrated into the traditional financial eco system in Mauritius and elevates its fintech industry in the provision of financial services. This article summarises the key features of the Act.
Categories of activities licensed
The Act regulates two main categories of activities:
- VASP, meaning a person that as a business conducts for or on behalf of another person one or more of the following activities or operations, namely (a) exchange between virtual assets and fiat currencies; (b) exchange between one or more forms of virtual assets; (c) transfer of virtual assets; (d) safekeeping of virtual assets or instruments enabling control over virtual assets; (e) administration of virtual assets or instruments enabling control over virtual assets; or (f) participation in, and provision of, financial services related to an issuer’s offer and sale of a virtual asset or an issuer’s offer or sale of a virtual asset. According to the Act, a virtual asset is a digital representation of value which 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 2005.
- Issuers of ITOs, which are companies registered as such under the Act making “initial token offerings” or “ITOs”. An “initial token offering” or “ITO” is an offer for sale to the public of a virtual token in exchange for fiat currency or another virtual asset.
Category 1: VASP
Different licences available under the VASP regime
VASP consists of several sub-categories of licenses as follows:
- Holders of Class M (Virtual Asset Broker-Dealer) licences carry out activities such as exchange between virtual assets and fiat currencies; or exchange between one or more forms of virtual assets.
- Class O (Virtual Asset Wallet Services) licences pertain to the transfer of virtual assets.
- Class R (Virtual Asset Custodian) licencee are responsible for safekeeping of virtual assets or instruments enabling control over virtual assets; administration of virtual assets or instruments enabling control over virtual assets.
- A Class I (Virtual Asset Advisory Services) licence is required for the participation in and provision of financial services related to an issuer’s offer and/or sale of virtual assets.
- Virtual asset exchanges must apply for a Class S (Virtual Asset Market Place) licence. A Virtual Asset Exchange is a centralised or decentralised virtual platform, whether in Mauritius or in another jurisdiction which facilitates the exchange of virtual assets for fiat currency or other virtual assets on behalf of third parties for a fee, a commission, a spread or other benefit and which – (i) holds custody, or controls virtual asset, on behalf of its clients to facilitate an exchange or (ii) purchases virtual assets from a seller when transactions or bids and offers are matched in order to sell them to a buyer. The definition of Virtual Asset Exchange also includes the owner or operator of the virtual platform, but excludes a platform only providing a forum where sellers and buyers may post bids and offers and a forum where the parties trade in a separate platform or in a peer-to-peer manner”.
It is apposite to note that whilst companies may generally apply for the relevant licence, banks or holders of licences issued under the National Payment Systems Act (‘NPS licensee‘) may also apply for a licence under the Act, subject to certain conditions:
- The written approval of the regulator (i.e. the Bank of Mauritius) must be obtained before an application is submitted; and
- A class “M” licence, class “O” licence or class “S” licence can only be issued to the subsidiary of the bank or the NPS licensee (as opposed to the bank or the NPS licensee itself).
In contrast, a bank can apply for a class “R” licence or a class “I” licence, provided that the written approval of the Bank of Mauritius is obtained.
Requirements for the application
An application for a VASP licence, specifying the relevant class or sub-category of licence sought, must be made to the FSC. The applicant must (a) be a duly registered company carrying on business activities in or from Mauritius; (b) be directed and managed from Mauritius; (c) have a physical office in Mauritius and (d) ensure that each of its controllers, beneficial owners, associates and officers satisfy the ‘fit and proper’ criteria of the FSC. In its determination of whether the applicant is directed and managed from Mauritius, the FSC may consider (i) the location of the strategy, risk management and operational decision making, (ii) the location of the executives responsible for such decision making or the management team meets to effect policy decisions, (iii) where board meetings take place, and (iv) the place of residence of officers, employees or directors, amongst other factors.
Continuing obligations of VASPs
The requirements attached to the licenses under the Act are comparable to the licensing requirements under the Financial Services Act 2007 (“FSA 2007”). For instance, no shares or legal or beneficial interest in a licensee may be transferred to a person without the approval of the FSC if (a) such transfer is less than 5 per cent, (b) the transfer does not result in a person holding more than 20% of the shares or the legal or beneficial interest, and (c) the transfer does not result in a change of control. In those instances, written notice to the FSC is sufficient. Conversely if the aforementioned criteria are not met, the prior approval of the FSC is required for a transfer.
The approval of the FSC is equally required for issues of shares, the appointment of controllers, beneficial owners and officers of a licence, modifying the scope of the VASP’s activities, reorganisation of a VASP’s legal structure, mergers, any change of name or a change of external auditor.
Adequate systems and controls must be implemented at all times to prevent market abuse and when keeping virtual assets in their custody, VASPs must further ensure that a sufficient amount of each type of virtual asset is maintained to meet its obligations towards clients. VASPs also have the financial obligation to maintain a minimum stated unimpaired capital depending on the class or subcategory of licence, segregate its accounts from those of its clients, maintain proper record keeping (including keeping information on the originators and beneficiaries involved in any transfer of virtual assets), and file its annual audited financial statements to the FSC.
Category 2: Issuers of ITOs
An issuer of ITO means a company making an offer for sale to the public of a virtual token (i.e. any cryptographically secured digital representation of a set of rights, including smart contracts, provided on a digital platform and issued or to be issued by an issuer of initial token offerings) in exchange for fiat currency or another virtual asset.
Requirements for registration
Issuer of ITOs must be registered with the FSC if they carry on business in or from Mauritius and an application for registration can be made through a virtual exchange in Mauritius (or an equivalent accepted by the FSC) at least 45 days before the start of the offer period and such application is processed by within 30 days.
Continuing obligations of issuers of ITOs
A key obligation for issuers of ITOs is to establish and maintain a white paper signed by every member of the governing body of the issuer and which provides full and accurate disclosure of a list of prescribed information (including the class(es) of virtual tokens available for subscription) allowing potential purchasers to make an informed decision. This helps in ensuring the traceability of ITOs. The white paper is published on the issuer’s website so that it is readily accessible and downloadable by potential purchasers for the duration of the offer period of virtual tokens (which must not exceed 6 months) and at least 15 days after the offer period ends.
If the issuer becomes aware of any information that may affect the interests of purchasers before the closure of the offer period, a disclosure of the information should be made to the FSC by giving written notice and providing a supplement to the white paper. Any changes in the class(es) of virtual tokens made available require the prior approval from the FSC.
Advertisement of ITOs should be clearly identifiable and be consistent with the information in the white paper and should in no way be misleading or in contravention of the rules of the FSC. In case of a material misrepresentation in the white paper, a purchaser will have the right to claim rescission of the subscription or damages from the issuer of ITOs. The purchaser may equally withdraw his purchase by giving written notice to the issuer of ITOs not later than 72 hours after the date of the agreement to purchase the virtual token.
Similar to VASPs, issuers of ITOs are required to carry out their business activities with honesty and with due diligence and are required to maintain the confidentiality of their clients in accordance with the data protection law. Issuers of ITOs must also abide by their obligations under the Act to avoid any penalties.
Other powers and functions of the FSC
In addition to issuing the VASP licences and registering issuers of ITOs, the FSC’s other powers and functions include maintaining a register of all VASPS and issuers of ITOs, monitoring their business activities, issuing guidelines to ensure compliance as appropriate, promoting investor education which facilitate innovation; taking any measures with the Bank of Mauritius to ensure the stability of the financial system in Mauritius in respect of its licensees, carrying out onsite inspections, and exchanging information with other supervisory bodies and law enforcement agencies.
The Act further provides for unlicensed VASP and issuers of ITOs who have been operating prior to the commencement of the Act have a deadline of 3 months after the commencement of the Act to be duly licensed or registered. Amongst other sanctions under the Act, fines of a maximum of MUR 5 million and a maximum imprisonment term of 10 years.
 Fiat currency (a) means a banknote or coin that is in circulation as a medium of exchange; and (b) includes a digital currency issued by the central bank or the central bank of a foreign jurisdiction.
 Peer-to-peer activities are licensed by the Financial Services (Peer-to-Peer Lending) Rules 2020.
 A “Controller” under the Act bears the same meaning as under the FSA 2007.