A New Regulatory Framework for the Financial Services Sector in Mauritius

Report of the Steering Committee on the Establishment of a New Regulatory Framework for the Financial Services Sector in Mauritius

Structure of Report and Recommendations

This Report is presented in seven sections.

•Section I summarises previous attempts made to establish a unified regulatory body.

•Section II provides a brief overview of international experience and trends regarding the structures set up for financial sector supervision.

•Section III focuses on the evolution of the financial sector of Mauritius against a backdrop of macroeconomic performance review. It highlights the evolution of employment in the sector, its contribution to GDP and its prospects. It also deals with the current organisational structure and staffing.

•Section IV considers the future shape to be given to the sector on the basis of a SWOT analysis.

•Section V goes to the core of the problem and takes up the arguments for a unified financial regulatory authority. These encompass the mechanism for good governance, accountability, the scope of regulatory powers and responsibilities as well as internal organisational structure of the authority.

•Section VI discusses the possible options to that end and makes proposals on how to propel Mauritius into a viable financial regional hub of international standard. This section includes proposals regarding the structure, staffing, human resources development and legislative framework

•Section VII proposes a phased implementation plan of the main recommendations made.

The main recommendations of the Committee are set out below.

(i) A unified financial regulatory authority, covering both banking and non-banking activities, be established in a phased manner, as follows:

Phase 1. The establishment immediately of a Financial Services Commission.

Phase 2. The eventual integration of the Financial Services Commission with the Bank of Mauritius.

(ii) The Financial Services Commission will be responsible for the licensing, regulation and supervision of all non-bank financial services. It will also be responsible for the protection of the rights of consumers of financial services.

(iii) The Financial Services Commission will take over the duties and functions of the Stock Exchange Commission, the Insurance Division and the Mauritius Offshore Business Activities Authority (MOBAA) as well as the regulation of all presently unregulated activities in the financial sector.

(iv) The Financial Services Commission will be managed by a Board which will be chaired by the Managing Director of the Bank of Mauritius. There will also be a Vice Chairperson and such other members as may be appointed by the Minister.

(v) The Financial Services Commission will facilitate the smooth integration of the onshore and offshore activities.

(vi) An appropriate legal framework is proposed for establishing the Financial Services Commission.

(vii) A Financial Services Advisory Council be established with the objective of giving overall direction and advice towards the development of the financial services sector. The Chairperson and Vice-Chairperson of the Advisory Council will be the Minister of Finance and the Minister responsible for Financial Services respectively. The other members will be the Governor of the Bank of Mauritius, the Chairperson and the Chief Executive of the Financial Services Commission, as well as practitioners from Mauritius and from overseas having an extensive exposure to financial sector development.

(viii) The establishment of a Financial Services Promotion Agency (FSPA) is being proposed as a separate entity. It will act as a one-stop-shop for the development and promotion of the financial services industry. The FSPA will work in close collaboration with the Board of Investment to devise strategies to attract investors to the financial sector of Mauritius. The FSPA will also be responsible for human resource development and keep abreast of technological advances in that sector.

The rationale of the abovementioned recommendations are given out in greater details in the text of the Report.

The Committee believes that the new regulatory structure which will emerge from the implementation of its recommendations will have the following benefits for Mauritius:

• It will go a long way towards making the financial services sector a well regulated sector.

• It will achieve the overall objective of sustaining economic development by the creation of high value-added jobs.

• It will set the right environment for the efficient integration of the financial and capital markets, the onshore and offshore sectors and generate the desirable synergies in the system.