Issues Pertaining to the Indo-Mauritius Double Taxation Avoidance Convention

Position of the Mauritius Ministry of Finance on the following:

1. Changes to the Indo – Mauritius Double Taxation Avoidance Convention

The India-Mauritius Joint Working Group (see note 1 below) met in December 2011, and in that context India has proposed certain changes to the Double Taxation Avoidance Convention

We have listened attentively to the concerns expressed by the Indian side and we are willing, as part of an all-inclusive package, to consider changes to the treaty that would address the Indian concerns, while ensuring that the changes do not affect the mutually beneficial effect of the treaty. Concrete proposals have been made to India. We are optimistic that both sides can conclude a mutually acceptable package that would yield a win-win outcome for both parties.

We would also like to emphasise that Mauritius is a jurisdiction of substance, it has a full‐fledged regulator (the Financial Services Commission) that oversees our global business sector, and it has adopted the necessary applicable and appropriate norms, standards and best practices set by International Bodies, such as the OECD, the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors and the International Organisation of Securities Commissions, etc. Mauritius requires substance which many other jurisdictions do not:

- First, there is a requirement for Global Business Companies (GBCs) to be set up and administered by licensed Management Companies,

- Second, there is a requirement for GBCs to have resident directors,

- Third, there is a requirement for Board meetings to be held in Mauritius, and

- Fourth, there is a requirement for banking transactions to be routed through Mauritius.

2. Reports that clients are being advised to change their base for investments into India

If this is the case, we consider that the investors are being ill‐advised. Firstly, the Indian parliament has not yet concluded its discussions on the budget proposals. Secondly, you would have observed in the Indian press a declaration from an Official of the Ministry of Finance to the effect that the budgetary provisions will not impact upon the issue of Tax Residency Certificate delivered by Mauritius. In effect, there is no clarity as yet on the outcome of the proposals made in the budget. Thirdly, Mauritius is currently engaged in a discussion with the Indian authorities and proposals have already been made in respect of the Treaty. We expect the Joint Working Group to meet anew in the near future to take forward these proposals. Government is confident that agreement will be reached on a workable solution for both parties that will bring certainty and stability in the market and which will then prevail.

Also, investors should bear in mind that it would cost much less to operate from Mauritius and that Mauritius is being used as a platform for investment into India not only because of the DTAC (other countries have the same provisions on capital gains with India) but also because of the quality of the service, its pool of professionals, the quality of its regulatory framework, geographical proximity, cultural affinities and long historical ties between India and Mauritius amongst others.

Mauritius is the main provider of FDI to India and also the preferred jurisdiction for Indian outward investments into Africa now. We believe that this should remain so. Why? It is a model that works, which has served and continues to serve the interests of both India and Mauritius and it does not make business sense to change a winning formula.

3. The general anti‐avoidance rule proposed by India

The law is still being discussed in the Indian Parliament. Any decision now might be premature.

However, we are concerned that in its current form the new law is likely to create much uncertainty for foreign investments.

It is a matter that we will surely discuss with our Indian counterparts at the next meeting of the JWG so that there is both certainty and stability for cross‐border investments to take place.

4. Mauritius platform for investments into Africa

Our Africa strategy is complementary to the one regarding Asia, including India and China, rather than a loss‐compensating initiative. The making of Mauritius as the ideal platform for investments into Africa actually fits within our development strategy of transforming the country into a services hub.

Africa now offers immense opportunities to investors be it in the mining industry, construction industry, telecommunications, software and IT services or manufacturing, etc and Mauritius has become the preferred platform for routing these investments into Africa. In fact, Development Financial Institutions favors Mauritius as the natural domicile for their investments in Africa

We believe that Mauritius is the ideal gateway for the structuring of investments into Africa for a number of reasons, including the following:

• our close cultural, business and bilateral ties with Africa;

• our business friendly legislation and government committed to growth of international business /businesses registered within 2 – 3 days;

• our robust banking system – regulated by the Bank of Mauritius / all major international banks present in Mauritius;

• our pool of highly qualified and bilingual professionals / bilingualism eases communication with French Speaking Africa;

• Mauritius is the only international financial services center that is member to all major African regional organizations (COMESA, SADC, African Union, IOR – ARC); and

• our network of Double Taxation Avoidance Agreements (13 Treaties with African countries) and Investment Promotion and Protection Agreements with African countries

NOTE 1: The Mauritius – India Joint Working Group

In 2006, India and Mauritius agreed to establish a Joint Working Group (JWG) to provide a platform to discuss concerns arising from the operation of the India‐ Mauritius Double Taxation Avoidance Convention (DTAC).

Over the years Mauritius has taken several measures to address the concerns that have been expressed by the Indian authorities at the JWG meetings. We have gone the extra mile agreeing to the stationing of an officer from the Revenue Department of India at the High Commission of India in Port Louis for better exchange of information. Other measures taken by Mauritius include the following:

• stringent licensing conditions have been introduced to ensure that Indian-sourced funds are not re-invested in India through Mauritius and thus to prevent round-tripping;

• Indian auditors have been allowed to practice in Mauritius – Global Business Companies investing in India may use the services of Indian auditors to have their accounts audited for Mauritian regulatory purposes;

• Mauritius law has been amended to provide for wider Exchange of Information with Indian authorities. A Mutual Assistance in Criminal and Related Matters Act has been introduced and provides for requests for judicial assistance, notwithstanding the confidentiality provisions that apply to Global Business Companies;

• the Mauritius Financial Services Commission (FSC) has signed an MOU with the Securities and Exchange Board of India (SEBI) providing for exchange of information; and

• we have also agreed, as requested by the Indian authorities, to issue Tax Residence Certificates (TRCs) on an annual basis, upon the recommendation of the FSC which will supervise full compliance with the undertakings provided by applicants for the TRC.

Mauritius: The FSC issues the New Code on the Prevention of Money Laundering and Terrorist Financing

Following the enactment of the new set of legislations, the FSC initiated a review of the existing FSC Codes on the Prevention of Money Laundering & Terrorist Financing (the “Codes”) intended for Management Companies, Investment Businesses and Insurance Entities. A major step in this review was to harmonise the requirements of the Codes issued and come up with a single comprehensive Code on Anti Money Laundering and Combating the Financing of Terrorism (AML/CFT) for all its licensees. This approach is in line with the consolidated licensing and supervisory framework put in place by the Financial Services Act 2007.

The main changes brought include the following:

• Enhanced general requirements for all licensees as well as specific guidance to each sector

• Recommendations from the last IMF/World Bank Financial Sector Assessment Program

• Revised list of equivalent jurisdictions and a list of non-cooperative countries and territories and countries with deficiencies in their AML/CFT regime

• Revised list of recognised, designated and approved stock/investment exchanges

The New Code will come into operation on 1 April 2012. All licensees must take necessary steps to implement the revised requirements effectively.

The FSC acknowledges the input of all those persons who have contributed to the review process.

The New Code can be consulted on the link below:

New FSC AML/CFT Code

WEF: Long-term Investing Can Be Severely Distorted by Inaccurate, Short-term Focus

Inaccurate measurement of investment values, returns, risks and liabilities can create substantial distortions to long-term investment strategies and drive long-term investors to adopt a short-term orientation, according to the Measurement, Governance and Long-term Investing report, released today by the World Economic Forum.

Since long-term capital can play an important role in helping to drive economic growth, stabilize financial markets, and provide financial returns to fund pensions, education and other social goods, the report focuses on the often overlooked, yet increasing number of measurement-related challenges that can hinder long-term investing. Among such challenges:

• Mark-to-market rules require long-term illiquid portfolios to be evaluated relative to a public market benchmark, however, short-term variations in the value of assets held for the long term can lead to shifts in investment policy or execution that hinder success in long-term investing.
• Poor risk measurements or an inadequate understanding of risk can lead institutions to hold riskier (or less risky) assets than they should otherwise.
• Staff evaluation and compensation schemes may create a framework that rewards staff for acting against the stated long-term interests of the institution.

The report argues that without effective governance, measurement schemes can distort decisions regarding the choice of investments and the time frame over which they are held. And the lack of meaningful, intuitive measurements for performance and risk over long-time horizons adds more complexity to long-term investing and the governance of such efforts.

“Long-term patient capital is vital to promote sustainable growth, create jobs and solve problems plaguing the global economy today. Yet, as this important paper highlights, a short-term orientation in terms of performance measurement, leadership, media focus and regulatory constraints threatens to obstruct long-term investment and deprive society of the critical benefits it can provide,” stated Scott Kalb, Chief Investment Officer, Korea Investment Corporation (KIC), and Chair of the World Economic Forum’s Global Agenda Council on Long-term Investing.

The central conclusion and recommendation of this study is that governing bodies and other external stakeholders need to act on the understanding that the performance of long-term investments unfolds over time periods longer than the quarter or the year, even when short-term measurements are used. Such metrics should be placed in context, lest long-term strategies be abruptly and unfortunately revised.

“In this report, we consider the impact of different types of measurements and how, combined with thoughtful governance approaches, institutions can think more carefully about measuring and supporting their long-term strategies,” observed Josh Lerner, Jacob H. Schiff Professor of Investment Banking, Harvard Business School, and the lead researcher for the report.

“Having a long horizon accentuates the importance of governance models, and long-term investors can play a critical role in fostering leading governance practices, both within their own institutions and for the companies that they invest in,” remarked Mark Wiseman, Executive Vice-President, Investments, Canada Pension Plan Investment Board. “For long-term investors, good governance that includes a qualified board with a solid long-term orientation and commitment is integral to ensuring that they are able to stay the course through economic and investment cycles. This report makes the case that without appropriate board oversight on risk assessment, valuation metrics or compensation structures, investors can easily lose sight of long-term gains and focus instead on short-term metrics.”

“Although there are numerous metrics for the short-term assessment of long-term investments, none are without limitations. Good governance therefore is critical to ensure sound decision-making around which investments are chosen and for how long they are held,” said Michael Drexler, Senior Director, Head of Investors Industries, World Economic Forum USA.

The report was developed by the World Economic Forum in collaboration with a research team led by Josh Lerner of Harvard Business School. Guidance was provided by the World Economic Forum’s Global Agenda Council on Long-term Investing.

HSBC to acquire Lloyds Banking Group Onshore Assets in the UAE

HSBC Bank Middle East Ltd (‘HSBC’), an indirect wholly-owned subsidiary of HSBC Holdings plc, has entered into an agreement to acquire the onshore retail and commercial banking business of Lloyds Banking Group (‘Lloyds’) in the United Arab Emirates (‘UAE’). The value of the gross assets being acquired is US$769m as at 31 December 2011. The transaction, which is subject to regulatory approvals, is expected to complete in 2012.

HSBC’s largest operations in the MENA region are based in the UAE where HSBC enjoys a market leading trade and commercial banking presence, in addition to the largest international retail banking and wealth management business. The business being acquired from Lloyds has approximately 8,800 personal and commercial customers and a loan book of approximately US$573m as at 31 December 2011.

Commenting on the acquisition, Simon Cooper, Deputy Chairman and Chief Executive Officer of HSBC in MENA, said: “HSBC is the leading international bank in the UAE and the addition of Lloyds’ strong presence in retail and commercial banking is highly complementary to our business. The acquisition underscores the strategic importance of the UAE, and of the MENA region as a whole, to HSBC.”

KPMG: Fill the glass to the brim: have we broken through?

Following the 2010 KPMG report Fill the glass to the brim, which looked at the implications of the new UCITS IV Directive, KPMG's Global Financial Services Tax practice has launched the updated survey Fill the glass to the brim: have we broken through? The survey shows that while the overall number of countries with tax issues as a result of the UCITS IV Directive has decreased since 2010, there still remains a significant portion of EU member states that have not addressed the issues.

ASIFMA and SIFMA Urge Indian Finance Ministry to Address Unintended Tax Consequences of Finance Bill, 2012

ASIFMA, joined by global alliance partner SIFMA, today sent a letter to Indian Finance Minister the Hon. Pranab Mukherjee urging him to act to preempt portions of the Finance Bill, 2012 (“Bill”) that will adversely affect investment in the Indian capital markets.

In particular, ASIFMA members believe implementation of the Bill’s provisions relating to taxation of indirect transfers of assets, as well as the General Anti-Avoidance Rule (“GAAR”), are too broadly worded and could be interpreted to tax investments by Foreign Institutional Investors (“FIIs”) in the Indian listed equity markets.

Nicholas de Boursac, ASIFMA CEO, also stressed, "The financial services industry is concerned that these tax proposals may inhibit the efficient operation of the Indian debt and equity markets. We believe that many of these consequences are unintended, and we urge the Finance Ministry to clarify the scope of the tax proposals and thereby avert unnecessary disruption to the Indian capital markets. Incorporating some of the recommendations of the Standing Committee on Finance would go a long way to resolving this important and urgent issue."

The relevant provisions of the Bill are expected to take effect on April 1, 2012, and it appears that market participants have already begun to reduce their positions in India. FIIs have assets under custody of more than Rs. 10 lakh crores (over US$200 billion) or 17% of the capitalization of India’s equity markets. In addition, they invest substantial sums in Indian government and corporate debt.

FIIs fear that the new tax rules could subject this foreign investment to double or triple taxation. Such onerous taxation – or even the risk of such taxation – could threaten this important source of capital for India’s businesses. In the meantime, FIIs are carefully evaluating these new tax risks.

In the letter to Finance Minister Mukherjee, ASIFMA and SIFMA confirmed the industry’s commitment to supporting the development of the Indian economy and recognized India’s potential as an important investment jurisdiction, noting that clarification of these tax provisions would help such efforts.

Mauritius: Legislation on penalty points driver’s licence to be introduced soon

The Prime Minister, Dr Navinchandra Ramgoolam, GCSK, FRCP, announced yesterday that a bill on the introduction of the penalty points driver’s licence will be tabled at the forthcoming session of the National Assembly. He was speaking at the official opening of the 5 km-long carriageway from Sottise to Forbach, which has been constructed to the tune of Rs 249 million. The penalty points driver’s licence system would thus help to decrease the number of road accidents, he explained. The Vice-Prime Minister, Minister of Public Infrastructure, National Development Unit, Land Transport and Shipping, Mr Anil Bachoo, GCSK, and other eminent personalities were present at the ceremony.

In his address, the Prime Minister also mentioned that a series of projects have been implemented to improve existing road infrastructure like the construction of the access road to Réduit Triangle, the Phoenix-Beaux Songes Link Road, and the Rivière du Rempart by-pass amongst others. He also made an appeal to drivers to respect the traffic codes and to be responsible on the roads. To ensure that road safety measures are being respected, more speed cameras will be installed and a special unit will be set up to monitor traffic regulations on the road, the PM added.

The Prime Minister said that the development of road infrastructure is important as it contributes to socioeconomic and industrial progress of a country. He added that each part of the country must be integrated in all development projects.

He recalled that in 2011 government invested some Rs 2.1 billion in road infrastructure and that for 2012 around Rs 4.3 billion have already been earmarked for various road and other infrastructure projects. He said that government is investing heavily in infrastructure projects so as to improve the quality of life of everyone in the country.

Minister Bachoo for his part said that the carriageway from Sottise to Forbach is only one of the various infrastructure projects currently undertaken by the government which also comprise the renovation and construction of hospitals, schools and leisure centres amongst others.

Man Group launches managed accounts system, Clarus, to give investors greater portfolio transparency

Man Group plc. (‘Man’), the alternative investment manager, has launched Clarus, an online portal for investors in managed accounts to obtain greater transparency in their underlying investments.

The financial crisis and subsequent shocks in markets have emphasised the need for visibility of the risks and liquidity in portfolios.

Man has developed Clarus to share investment insights with clients and provide more data and analysis than historical performance-based reporting. It allows clients to visualise their exposure to underlying risk factors in both their managed accounts and aggregated as part of their wider portfolio.

Eric Burl, Man’s Head of Managed Accounts, said, “Over recent years investors’ demands have shifted dramatically and people now want to see how assets are controlled, that there is good liquidity, and that their cash will be returned when they want it. Clarus provides the heightened transparency our investors seek.”

Key managed account and portfolio information that can be visualised by clients using Clarus includes performance and performance decomposition, style attribution and performance, and value-at-risk, broken down into foreign exchange sensitivities, commodity sensitivities, equity sensitivities and interest rate sensitivities.

Man currently manages $8.0 billion of assets within managed accounts. In March 2011, Man announced a managed account mandate for an initial EUR 1.2 billion from Bayerische Versorgungskammer (‘BVK’), Germany’s largest public pension fund with more than EUR 50 billion in assets. In 2010 it announced a managed account mandate for up to $1 billion by the Universities Superannuation Scheme Limited (‘USS’), the UK’s second largest private sector pension fund.

UK: Coutts fined £8.75 million for anti-money laundering control failings

The Financial Services Authority (FSA) has fined Coutts & Company (Coutts) £8.75 million for failing to take reasonable care to establish and maintain effective anti-money laundering (AML) systems and controls relating to high risk customers, including Politically Exposed Persons (PEPs).

The failings at Coutts were serious, systemic and were allowed to persist for almost three years. They resulted in an unacceptable risk of Coutts handling the proceeds of crime.

In October 2010, the FSA visited Coutts as part of its thematic review into banks’ management of high money-laundering risk situations. Following that visit, the FSA’s investigation identified that Coutts did not apply robust controls when starting relationships with high risk customers and did not consistently apply appropriate monitoring of those high risk relationships. In addition, the FSA determined that the AML team at Coutts failed to provide an appropriate level of scrutiny and challenge.

The FSA identified deficiencies in nearly three quarters of the PEP and high risk customer files reviewed. Specifically, in one or more of each inadequate file Coutts failed to:

• gather sufficient information to establish the source of wealth and source of funds of its prospective PEP and other high risk customers;
• identify and/or assess adverse intelligence about prospective and existing high risk customers properly and take appropriate steps in relation to such intelligence;
• keep the information held on its existing PEP and other high risk customers up-to-date; and
• scrutinise transactions made through PEP and other high risk customer accounts appropriately.

Tracey McDermott, acting director of enforcement and financial crime, said:

“Coutts’ failings were significant, widespread and unacceptable. Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures.

“Coutts was expanding its customer base which increased the number of high risk customer relationships. The regulatory environment in relation to financial crime had also changed. It is therefore particularly disappointing that Coutts failed to take appropriate steps to manage its AML risks. This penalty should serve as a warning to other firms that, not only should they ensure they constantly review and adapt their controls to changing financial crime risks within their businesses, but that they must also make changes to reflect changing regulatory or other legal standards.”

As a result of the FSA’s review, a number of improvements and recommendations have already been, or are being, implemented. These include significant remedial amendments to PEP and other high risk customer files to ensure that appropriate due diligence information about Coutts’ customers has been assessed and recorded.

Coutts agreed to settle at an early stage and therefore qualifies for a 30% discount. Were it not for this discount, the FSA would have imposed a financial penalty of £12.5m.

Final Notice

Possible Sale of HSBC Retail Banking & Wealth Management Business in Mauritius

The Hongkong and Shanghai Banking Corporation Limited (“HSBC”), a wholly-owned subsidiary of HSBC Holdings plc, advises that it is in discussions concerning a possible sale of its Retail Banking and Wealth Management business in Mauritius.

These discussions are ongoing and may or may not lead to a transaction.

HSBC will make a further announcement if or when appropriate.

HSBC remains committed to the Mauritius market and continues to invest in growing its Global Business, and Corporate Banking businesses in Mauritius.

Mauritius: 2012 Article IV Consultation - Staff Report

Supervisory coordination between the Bank of Mauritius (BOM) and the Financial Services Commission (FSC) should be enhanced further to ensure that there are neither supervisory loopholes nor supervisory overlaps. The decision on a possible merger of the two agencies needs further study to weigh potential benefits of supervisory unification against potential costs, particularly regarding integration, specialization, and institutional cultures. IMF technical assistance might be useful in this area. Loopholes have been identified with regard to AML/CFT supervision of non-financial businesses and professions, some of them essential to GBCs’ operations. Due to the importance of GBCs’ activities for the financial sector, this creates a risk, which is currently being addressed by the authorities with IMF technical assistance support.

Country Report No. 12/6

Mauritius: Mr. Marc Hein appointed as Chairman of the FSC

Mr. Marc Hein has been appointed as the Chairman of the Financial Services Commission (‘FSC’) on 19 March 2012. Prior to joining the FSC, Mr. Hein served as Chairperson of the National Economic and Social Council since March 2011.

Mr. Hein has a wide expertise as barrister. He holds a Bachelor’s degree in Law from the University of Wales, Licence-en-Droit from l’Université d’Aix en Provence and a degree of Utter Barrister of Gray's Inn, UK. He started practising law in Mauritius in 1979 at the Chambers of Sir Raymond Hein Q.C. In 1991, he founded the Juristconsult Chambers, one of the largest law firms in Mauritius. He was a member of the Mauritius Parliament from 1983 to 1987 and served on various parliamentary and select committees. Member of the Bar Council, he was elected as Chairman in 1993. Mr. Hein was representative of the International Bar Association in Mauritius from 1992 to 2004. He is also member of international professional bodies namely the International Fiscal Association, the Offshore Institute and a fellow member of the Mauritius Institute of Directors.

Mr. Hein has developed substantial expertise and experience in all laws linked to business, including corporate, commercial, insolvency, labour and industrial relations, and has represented clients since 1980 before all courts of Mauritius, the Privy Council and the Seychelles. He has an in-depth experience in the global business sector and has long been associated with the financial services sector, having held the post of director of investment funds, listed and unlisted companies and legal adviser to local and international firms.

Following his appointment as Chairman of the FSC (“the Commission”), Mr. Hein has started all the necessary procedures to ensure that there is no risk of conflict of interest between his role as Chairman and the Commission’s licensees. The Commission is pleased to welcome Mr. Marc

Hein. His vast experience in the financial services sector will bring a new dimension for the FSC and his expertise in the sector will provide more guidance in face of the challenges ahead for the sector.

Commenting on his recent appointment, Mr. Marc Hein says that: “My appointment as the Chairman of the FSC is an opportunity to bring my support and contribution to meet the challenges facing the financial services sector. I am looking forward to work with the Chief Executive and the FSC Team to strengthen the resilience of the sector and consolidate the position of the Mauritius International Financial Centre as a jurisdiction of substance and sound repute”.

Jersey: Finance Industry calls for measured response to UK Budget announcements

The body responsible for promoting the island's finance industry has called for a measured approach to understanding the implications of yesterday's UK budget and has stressed that changes to the tax rules around the use of offshore companies to purchase UK residential property worth £2m or more do not represent a problem along the lines of the recent scrapping of LVCR for the finance industry.

Geoff Cook, CEO of Jersey Finance, said: "The changes proposed are fiscal measures designed to increase revenues to the UK Treasury through the collection of stamp duty on UK residential property worth £2m or more. While this is important business for the Channel Islands' finance sector, it is very much a single service within a broad and deep portfolio of services that the islands offer. The demand for such properties has been much in evidence from overseas buyers many of whom will still see the purchase of London based residential property as an attractive proposition despite the imposition of the additional stamp duty charge. It is also important to note that, unlike the changes to LVCR, these proposals do not relate to a specific sub-industry, but only to a particular and specific use of offshore companies. The changes apply to all offshore companies wherever they are located in the world, so the islands are not being singled out for specific attention."

Mr Cook also questioned some comments that the changes may affect the recent confirmation by the EU to approve the Jersey's Zero Ten business taxation regime.

He added: "Zero Ten has been examined in detail by the EU, and by association the UK, and with the recent changes to remove the so-called deemed distribution elements, the regime has been found to be fully compliant with the EU tax code. The Chancellor himself has stated his desire to see tax laws that are simple, straightforward and which work for business and the wider economy and the Zero Ten regime is just such a simple and straightforward tax. The hard work of the Jersey government, in balancing our desire to act as a 'good neighbour' to the UK and Europe, while at the same time safeguarding Jersey's interests, and the successful tax regime that underpins our modern finance industry has been proven, and it is not in anyone's interests to undermine confidence by speculating about the future of Zero Ten when it has been so recently examined and endorsed by the EU.

Responding to suggestions that the budget announcements might impact jobs in the finance industry, Mr Cook again urged for a measured examination of the facts. He said: "As with any budget announcement, a significant period of review of the detail is needed before all implications can be understood. There will now be a lengthy period of consultation regarding the proposed changes and this will allow Jersey Finance, working alongside industry and government, to consider the detail of the changes and respond accordingly. It is important to point out that these measures affect neither of the two largest activities in our finance industry, namely the collection and administration of deposits and funds.

The finance industry in Jersey has weathered the global financial crisis well, with recent statistics showing positive growth trends over the last four years since the height of the crisis marked by the collapse of Lehman Brothers in 2008. Jersey has a well-diversified finance industry offering services across banking, funds, private wealth and capital markets, all of which have shown overall growth since 2008. The number of people employed by the industry is also at the highest level for a number of years.

Looking to the future, Jersey Finance highlighted its strategy to promote Jersey internationally based on the island's expertise and high standards, with global target markets including fast growing economies such as India, China, Russia and the Gulf, as well as mature markets, including the UK and Western Europe.

Jersey's international reputation and standing was endorsed earlier this week with the publication of the 11th edition of the Global Financial Centres Index, which for the sixth time in succession, ranked Jersey as the number 1 offshore centre in the world and in the top ten globally for private wealth and banking services.

United Capital Forex Limited - Forged FSC Letter

The Financial Services Commission would like to alert members of the public with regards to its name and logo being used on a forged letter.

This letter had been submitted to a UK financial services firm, together with a bogus copy of a licence which is purported to have been issued by the Mauritius Financial Services Commission.

The letter referred to "Authorisation under Section 6 of the Financial Services (Markets in Financial Instruments) Act 2006", and that the "authorisation permits United Capital Forex Limited, with licence number FSC1485B to conduct certain investment services under the Act", having been "assigned to Category 2 as a Portfolio Manager."

The FSC has, of course, never issued such a letter, which has clearly been designed with intent to convince the firm to which it was sent that the company was licensed by the FSC. United Capital Forex Limited was not previously known to the FSC. The register of companies at Companies House in Gibraltar has no record of any such company although the name and address match a company on the UK register of companies.

Any persons who have received a similar letter are kindly requested to forward these to the Manager, Enforcement on +350 200 40283 or by e-mail to enforcement@fsc.gi

The Global Financial Centres Index (GFCI) 11

The GFCI provides profiles, ratings and rankings for 77 financial centres, drawing on two separate sources of data – instrumental factors (external indices) and responses to an online survey. The GFCI was first published by the Z/Yen Group in March 2007 and has subsequently been updated every six months. Successive growth in the number of respondents and data has enabled us to highlight the changing priorities and concerns of financial professionals over this time, particularly since financial crises began to unfold in 2007 and 2008. This is the eleventh edition of GFCI (GFCI 11).

Offshore centres have suffered significant reputational damage in the past four years. In GFCI 10 several of these centres were beginning to recover and this trend has continued. Jersey, Guernsey, the Cayman Islands, the British Virgin Islands, the Isle of Man, Gibraltar and Mauritius (listed in order of GFCI rank) have all made modest gains in the ratings. Jersey and Guernsey remain the leading offshore centres. A number of our respondents believe that centres like Zurich, Geneva and Luxembourg,whilst not geographically ‘offshore’, compete in a similar manner to the genuinely offshore centres. It is interesting to note that Zurich, Geneva and Luxembourg have all risen in the GFCI 11 ratings.

Jersey Minister and finance professionals join leading City practitioners to explore future of funds business

A heavyweight line up of finance and legal professionals will consider the future of the funds industry with a particular focus on how the markets will impact International Finance Centres at the annual funds conference hosted and organised by Jersey Finance in London next month.

Two panel sessions will explore some of the key issues and opportunities facing the industry. The first will explore the Alternative Investment Fund Managers Directive (AIFMD) Level 2 implementation methods and its implications on the European and offshore alternative funds industries. Later in the programme a fresh panel will debate the current funds marketplace from an International Finance Centre perspective, discussing the key drivers for funds businesses and identifying trends in the split of real estate, private equity and hedge funds as well as the opportunities for fund managers and promoters looking to use Jersey. These panels will be moderated by Anthony Hilton, City Editor of the Evening Standard.

Two keynote presentations will open and close the event with David Smith, Economics Editor at The Sunday Times, addressing the audience with his insight into how western economies can rebalance in light of the economic crisis and steady rise of the BRIC economies. Jersey’s Treasury and Resources Minister Senator Philip Ozouf will close the conference by underscoring the States of Jersey’s commitment to safeguarding and building the future of the island’s funds industry.

Geoff Cook, chief executive, Jersey Finance Limited, who will open the event, commented:

“Against a backdrop of market volatility, economic uncertainty and regulatory burden, this year’s funds conference brings together an exceptional group of industry experts to explore these challenges and look at the opportunities ahead. Jersey has had a positive start to 2012 with the introduction of the Private Placement Fund Regime, the value of which is already being realised by fund managers. Issues such as AIFMD will continue to present regulatory challenges for jurisdictions like Jersey, however it will also offer opportunities and I look forward to generating thought-provoking debate on these important issues.”

Nigel Strachan, Chairman of the Jersey Funds Association, added:

“Having reported a 2.5% increase in the net asset value of funds under administration and a 25% increase in the number of unregulated funds during 2011, Jersey’s funds industry continues to perform well, strengthening its offering for sophisticated, professional and institutional investors and focusing on providing high levels of certainty. Maintaining momentum will be vital this year and this conference will undoubtedly provide a fascinating insight into what is on the horizon for our industry.”

IMF Executive Board Concludes 2012 Article IV Consultation with Mauritius

On March 14, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mauritius.

Background

The Mauritian economy continued its recovery in 2011, but growth momentum has slowed down in face of an adverse external environment. Real GDP growth is estimated to remain at around 4 percent, driven mostly by growth in textiles, ICT, financial services, and real estate. Inflationary pressures increased substantially in the first half of the year (the year-on-year inflation rate tripled to 6.6 percent in June) mainly on account of import prices and one-time increases in administered prices. There was a further jump to 7 percent in November 2011 due to one-time increases in alcohol and tobacco excises. By December, inflationary pressures moderated with year-on-year inflation falling to 4.9 percent as the base effects became absorbed. The fiscal stance was broadly unchanged compared to 2010, but less expansionary than expected. The overall deficit is estimated to have narrowed to 2.4 percent of GDP. The structural primary deficit excluding grants decreased from 0.3 percent of GDP in 2010 to 0.1 percent. A small shortfall in total revenues and grants was more than offset by the fact that capital expenditures were almost 1 percentage point of GDP lower than anticipated. While total expense remained close to projected levels, contrary to what was anticipated there was a net accumulation of resources in extra budgetary funds of almost 1 percent of GDP. Expense on goods and services and compensation of employees was lower than projected partly because of the postponing of local elections to 2012 and delays in filling vacancies in the civil service, whereas expense on grants and transfers was almost 2 percentage points of GDP higher than anticipated, because of larger capital grants and transfers to the special funds. Public sector debt declined to 56 percent of GDP.

Monetary policy was tightened with the key repo rate increased cumulatively by 65 basis points in response to inflationary developments. To address excess liquidity that built up in the system, the Bank of Mauritius (BOM) increased cash reserve requirements from 6 to 7 percent in February and issued Bank of Mauritius Bills and Notes with maturities of up to four years. It also increased the repo rate by 50 basis points in March and by 25 basis points in June, before lowering it by 10 basis points in December to address inflationary and economic developments. Private sector credit growth estimated at 13 percent for 2011 remained adequate, and similar to 2010. The authorities continued to intervene in the foreign exchange market to smooth excess volatility. Later in the year, the BOM also intervened to limit the appreciation of the rupee with most of the interventions sterilized. As a result of its liquidity management, the BOM's profitability was reduced in 2011.

The banking sector remains robust, and the system has proved resilient. Banks have remained liquid and well-capitalized, with 14.1 percent of Regulatory Tier I capital to risk-weighted assets in June. Non-performing loans (NPL) decreased from 2.8 percent of gross loans at end-2010 to 2.6 percent by June 2011. Banks have remained profitable with 21.5 percent return on equity, despite relatively low leverage ratios. In June 2011, the BOM started publishing CAMEL rating of domestic banks. This is a welcome development, as it is one of the first central banks in Sub-Saharan Africa (SSA) to do so. This should contribute to increase transparency about the state of the banking system. Despite strong export growth, a rebound in world commodity prices led to a widening of the current account deficit, but international reserves increased. Exports increased some 16 percent (in dollar terms), with strong growth registered across all major tradable industries. Tourism receipts grew some 12 percent as well, but a marked decrease in fourth quarter arrivals from key EU markets point to a difficult year ahead. On balance, the 17 percent increase in imports and a reduction in net transfers widened the current account deficit to some 10 percent of GDP. The deficit was more than covered with portfolio inflows and official loan disbursements. International reserves increased in nominal terms, but reserve cover in terms of imports of goods and services slipped to 4.4 months.

Over the past two decades, wide-ranging structural reforms, supported by prudent policies, have established Mauritius as a top regional performer. Mauritius’ national statistical capacity is being strengthened in line with its needs as an emerging economy. In line with these efforts, Mauritius subscribed to the Special Data Dissemination Standard (SDDS) in February 2012.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities’ skillful policy response to the global crisis, which has enabled a strong economic recovery and contained inflationary pressures. The growth outlook for 2012 is broadly positive, although external risks have increased. The key priorities going forward are to sustain fiscal consolidation, reduce external imbalances, enhance competitiveness and public sector service delivery, and foster inclusive growth.

Directors acknowledged the need for higher public investment to remove infrastructure bottlenecks. At the same time, most Directors saw merit in a slightly less expansionary fiscal stance than projected for 2012, in view of the need to build policy buffers. In case of a significant slowdown in growth, contingent measures in the budget can be used and automatic stabilizers should be allowed to operate.

Directors agreed that fiscal consolidation needs to be sustained to reduce debt vulnerabilities and achieve Mauritius’ debt reduction targets. They emphasized the need to reform the social protection system and public enterprises. They supported efforts to rationalize subsidies and better target social benefits, and to develop a financial monitoring framework to minimize transfers to state owned enterprises, implement full cost recovery, and enhance governance.

Directors welcomed the authorities’ efforts to ensure price stability, underpinned by an appropriate monetary policy stance. They supported continuing efforts to remove excess liquidity in the system. Directors welcomed future plans to adopt formal inflation targeting, which could help anchor inflation expectations, and supported ongoing initiatives to strengthen capacity within the central bank.

Directors noted the staff’s assessment that the real exchange rate is broadly in line with fundamentals. They agreed that the floating regime has served the economy well, and that exchange rate interventions should be limited to smoothing volatility. They noted that an adequate reserve cushion together with a stronger fiscal position and improved competitiveness are important to reduce external imbalances and safeguard against shocks.

Directors noted that the banking system is well capitalized and resilient to shocks. They welcomed efforts to increase transparency and plans to strengthen supervisory coordination, enhance the stress testing framework, and improve data availability in the financial sector.

Directors called for continued efforts to secure more inclusive and diversified growth. In addition to social protection and state owned enterprise reform, this will require investments in human and physical infrastructure, as well as further improvements in the business environment.

Directors commended Mauritius’ subscription to the Special Data Dissemination Standard (SDDS) in February 2012.

Mauritius: Selected Economic and Financial Indicators, 2009–2017
	2009	2010	2011		2012		2013	2014	2015	2016	2017
		Prel.	Last SR	Est.	Last SR	Proj.	Proj.	Proj.	Proj.	Proj.	Proj.
National income, prices and employment
Real GDP	3.0	4.1	4.1	4.1	4.2	3.7	4.1	4.2	4.2	4.2	4.2
Real GDP per capita	2.5	3.7	3.5	3.5	3.6	3.1	3.5	3.6	3.6	3.7	3.7
GDP per capita (in U.S. dollars)	6,919	7,582	7,990	8,385	8,471	8,403	8,789	9,158	9,649	10,184	10,807
GDP deflator	-0.2	1.8	5.0	4.3	4.4	3.9	5.9	4.4	4.4	4.4	4.4
Consumer prices (period average)	2.5	2.9	7.4	6.5	4.6	4.8	5.3	4.9	4.4	4.4	4.4
Consumer prices (end of period)	1.5	6.1	5.8	4.9	4.4	5.0	5.5	4.4	4.4	4.4	4.4
Unemployment rate (percent)	7.3	7.8	…	7.8	…	...	...	...	...	...	...
External sector
Exports of goods and services, f.o.b.	-15.6	18.9	12.5	15.5	6.6	3.0	6.1	6.0	6.2	6.5	6.7
Of which: tourism receipts	-23.5	15.9	10.4	13.5	11.2	2.9	10.3	9.2	9.0	9.1	9.1
Imports of goods and services, f.o.b.	-19.3	20.5	18.8	17.1	4.2	3.0	4.3	3.7	4.1	4.5	5.0
Nominal effective exchange rate (annual averages)	-5.8	3.2	...	3.1	...	...	...	...	...	...	...
Real effective exchange rate (annual averages)	-4.6	3.2	...	5.7	...	...	...	...	...	...	...
Terms of trade	7.8	-5.5	...	-4.9	...	...	...	...	...	...	...
	(Annual change in percent of beginning of period M2)
Money and credit
Net foreign assets	17.4	20.2	10.3	-7.7	...	16.9	...	...	...	...	...
Domestic credit	1.8	10.3	16.1	8.6	...	10.0	...	...	...	...	...
Net claims on government	1.1	1.0	2.5	-1.4	...	1.5	...	...	...	...	...
Credit to private sector1	0.4	10.1	13.6	10.7	...	8.2	...	...	...	...	...
Broad money (end of period, annual percentage change)	8.1	7.6	9.3	4.6	...	12.3	...	...	...	...	...
Income velocity of broad money	1.0	0.9	0.9	1.0	...	0.9	...	...	...	...	...
Interest rate (weighted average TBs, primary auctions)	4.4	3.9	...	4.6	...	...	...	...	...	...	...
	(Percent of GDP, unless otherwise indicated)
Central government finances
Overall consolidated balance (including grants) 2	-2.0	-3.0	-4.8	-2.4	-4.5	-3.7	-3.2	-2.7	-2.7	-2.2	-1.8
Primary balance (including grants)2	1.8	0.4	-1.3	0.6	-1.0	-0.5	-0.6	-0.1	-0.2	0.3	0.6
Revenues and grants	22.8	21.9	21.5	21.2	21.0	21.8	20.9	21.1	21.2	21.2	21.3
Expenditure, excl. net lending	24.8	24.9	26.2	23.7	25.5	25.5	24.1	23.8	23.9	23.3	23.1
Domestic debt of central government	44.7	43.1	42.5	41.2	41.6	40.5	38.1	36.8	37.0	37.0	34.0
External debt of central government	6.0	7.4	8.9	8.5	10.5	10.0	11.6	12.9	12.7	12.2	11.2
Investment and saving
Gross domestic investment	26.4	24.9	26.2	24.4	26.6	24.8	25.3	25.7	26.1	26.6	27.0
Public	6.6	6.1	7.6	6.4	7.7	7.4	7.7	7.8	8.3	8.2	7.6
Private	19.8	18.8	18.6	18.0	18.9	17.5	17.5	17.9	17.9	18.3	19.4
Gross national savings	13.8	15.6	14.2	14.7	15.7	14.8	16.4	18.1	19.8	21.4	23.0
Public	-0.8	-0.5	-0.7	-0.7	-0.5	0.2	0.5	1.1	1.3	1.4	1.5
Private	14.6	16.1	14.9	15.5	16.2	14.7	15.8	17.1	18.5	20.1	21.5
External sector
Balance of goods and services	-10.5	-12.1	-15.7	-13.5	-13.5	-13.8	-12.7	-11.4	-10.1	-8.9	-7.9
Exports of goods and services, f.o.b.	47.1	50.9	52.9	52.8	53.6	53.9	54.4	55.0	55.1	55.3	55.4
Imports of goods and services, f.o.b.	-57.6	-63.0	-68.6	-66.3	-67.1	-67.7	-67.2	-66.4	-65.2	-64.3	-63.2
Current account balance	-7.4	-8.2	-11.8	-9.9	-9.9	-10.2	-9.1	-7.8	-6.6	-5.4	-4.3
Overall balance	4.3	2.1	-0.9	1.3	0.1	-2.4	0.2	0.5	0.8	0.6	1.0
Total external debt 3	12.7	14.4	13.5	15.0	15.2	16.1	17.7	18.4	16.5	14.8	14.6
Net international reserves (millions of U.S. dollars)	2,150	2,448	2,253	2,636	2,265	2,420	2,512	2,660	2,852	3,035	3,289
Months of imports of goods and services, f.o.b.	5.1	4.8	3.8	4.4	3.7	3.9	3.9	4.0	4.1	4.2	4.3
Memorandum items:
GDP at current market prices (billions of Mauritian rupees)	282.0	299.1	327.4	324.8	356.6	350.0	385.9	419.6	456.3	496.5	540.2
GDP at current market prices (millions of U.S. dollars)	8,824	9,714	10,299	10,809	…	...	...	...	...	...	...
Public sector debt (percent of GDP)	59.6	57.3	58.8	56.1	59.7	57.0	55.7	54.8	55.5	54.2	49.8
Foreign currency long-term debt rating (Moody's)	Baa2	Baa2	…	Baa2	…	…	…	…	…	…	…
Sources: Mauritian authorities; and IMF staff estimates and projections. 1 Excludes credit to state-owned enterprises. 2 GFSM 2001 concept of net lending/net borrowing, includes special and other extrabudgetary funds. 3 Reported debt only, excluding private sector short-term debt.