Mauritius : MoU signed between FSC and MRA

The Financial Services Commission (FSC) Mauritius and the Mauritius Revenue Authority (MRA) have signed a Memorandum of Understanding (MoU) this Thursday 03 June, at the FSC House, Ebene.

This MoU sets out a framework for effective exchange of information between the FSC and the MRA.

The Chief Executive of the FSC, Dr Milan Meetarbhan, GOSK said:

"Mauritius is not only a jurisdiction of substance but also a jurisdiction of sound repute. This entails compliance with standards set by international standard-setting organisations and compliance with international norms namely relating to the disclosure and exchange of information.

Mauritius is committed to keep up with international expectations in terms of exchange of information. We have, over the years, adopted necessary amendments to our laws for the FSC to provide information in specified circumstances and within certain prescribed parameters.

Exchange of information is not just about tax. It is also about the fight against crime, the fight against money laundering and the fight against financing of terrorism. Mauritius as a reputable IFC must support international cooperation in these areas.

Mauritius also wants to ensure that it remains a competitive IFC. Whilst we subscribe to international norms, we also want to protect the business confidentiality of those who choose to invest in Mauritius or do business with the rest of the world from Mauritius.

We have to strike a balance between our international obligations and the imperatives of competitiveness. Mauritius wants to be a jurisdiction of substance, of sound repute, compliant with international norms and also remain competitive. We are fully conscious of the need to achieve ALL these objectives.

The MOU we are signing today is very much in line with MOU’s amongst regulators or with other agencies and contains the usual safeguards relating to confidentiality and purposes for which the information is used and also contains the conventional clause requiring prior consent before information from one authority is disclosed to a third party”.

On the collaboration with the MRA, the Chief Executive of the FSC said:

“I wish to put on record the strong support from MRA with respect to negotiations relating to DTAAs and to international reviews or assessment of Mauritius as a compliant jurisdiction.

The signing of this MOU today is yet another demonstration of our commitment to participate fully and effectively to international efforts for global cooperation.”

The Director General of the MRA, Mr Sudhamo Lall, said:

“Mauritius is well-reputed as an International Financial Centre and we should have enabling mechanisms to share information in accordance with law and give comfort to international tax authorities and regulators. Mauritius has been on the OECD white list of cooperative jurisdictions since day one and the signing of this MoU with the FSC will further enhance our capacity. We will continue to give assistance for the interest of the country.”

ACFE releases Global Fraud Report

The Association of Certified Fraud Examiners (ACFE) 2010 Report to the Nations on Occupational Fraud and Abuse is based on data compiled from a study of 1,843 cases of occupational fraud that occurred worldwide between January 2008 and December 2009. All information was provided by the Certified Fraud Examiners (CFEs) who investigated those cases. The fraud cases in our study came from 106 nations — with more than 40% of cases occurring in countries outside the United States — providing a truly global view into the plague of occupational fraud.

Since the inception of the Report to the Nation more than a decade ago, we have released five updated editions — in 2002, 2004, 2006, 2008 and the current version in 2010. Like the first Report, each subsequent edition has been based on detailed case information provided by Certified Fraud Examiners (CFEs). With each new edition of the Report, we add to and modify the questions we ask of our survey participants in order to enhance the quality of the data we collect. This evolution of the Report to the Nation has enabled us to continue to draw more meaningful information from the experiences of CFEs and the frauds they encounter.

In our 2010 Report, we have, for the first time ever, widened our study to include cases from countries outside the United States. This expansion allows us to more fully explore the truly global nature of occupational fraud and provides an enhanced view into the severity and impact of these crimes. Additionally, we are able to compare the anti-fraud measures taken by organizations worldwide in order to give fraud fighters everywhere the most applicable and useful information to help them in their fraud prevention and detection efforts.

Excerpt from the Report's "Letter from the President," by James D. Ratley, CFE:

"On behalf of the ACFE, and in honor of its founder, Dr. Joseph T. Wells, CFE, CPA, I am pleased to present the 2010 Report to the Nations on Occupational Fraud and Abuse to practitioners, business and government organizations, academics, the media and the general public throughout the world. The information contained in this Report will be invaluable to those who seek to deter, detect, prevent or simply understand the global economic impact of occupational fraud."

AIMA Warns of Wider Impact of AIFM Directive

If the European Union pushes through a flawed Directive on Alternative Investment Fund Managers the impact will go far beyond the hedge fund and private equity industries. That’s according to the Alternative Investment Management Association (AIMA) – the global hedge fund industry association.

The warning comes ahead of two key votes next week on the Directive - in the European Parliament’s Economic and Monetary Affairs Committee (ECON) on May 17th and the Economic and Finance Council (ECOFIN) meeting of European finance ministers on May 18th.

Andrew Baker, Chief Executive Officer of AIMA, said: “Of course the hedge fund and private equity industries would be impacted by a flawed Directive, but the consequences would be much wider. We have already heard how the Directive would hit small firms across Europe and make it more difficult for new businesses to be created, and how development banks investing in emerging markets would be affected. Real estate and infrastructure investment in Europe would also be impacted because funds in this sector would also be covered by the Directive. We’re talking about schools, hospitals, shopping centres, things that affect ordinary EU citizens.

“We are particularly concerned about measures which would ban European investors from accessing funds outside the European Union. Major investors in alternative investments include pension funds and insurance companies, and there would be very negative social consequences across Europe if their investments were adversely influenced by such a ban. Ordinary European citizens would have to pay higher pension contributions and insurance premiums.

“Closing Europe’s borders would send all the wrong signals out to the rest of the world about Europe’s place both as a global centre for financial services and as a destination for international investment. It would significantly affect international trade and capital flows and result in protectionist consequences. And it would impact ordinary citizens and small businesses across the EU and emerging markets internationally.”

Mauritius : Insurance Broker

An “Insurance Broker” is defined as a person who arranges insurance business with insurers on behalf of prospective policyholders, or as a representative of a policyholder, and includes a reinsurance broker carrying on reinsurance brokering for an insurer.

Licence as Insurance Broker

An application for a licence to act as insurance broker shall be made to the Financial Services Commission (FSC). The FSC will grant such licence if it is satisfied that:

1. the objectives of the business of the applicant are consistent with the Insurance Act 2005 (as amended) and are limited to the business stated in the application and operations arising directly from it;
   
2. the applicant has such stated capital as may be specified in the FSC Rules;
   
3. the applicant is covered by a professional indemnity insurance policy acceptable to the FSC and meeting such requirements as may be prescribed;
   
4. the applicant has disclosed such bona fide information as the FSC has requested in relation to the proposed business, and to persons who will, upon commencement of the applicant’s business, have any proprietary, financial or other interest in, or in connection with, that applicant;
   
5. the applicant has the financial resources, organisation and management capacities that are necessary to carry on the business which is the subject matter of the application;
   
6. the applicant, the substantial shareholders, controllers, and officers of the applicant where it is a body corporate are fit and proper persons to ensure the sound and prudent management of the business;
   
7. the applicant will, upon being licensed, be able to comply with and fulfil all requirements under the Insurance Act 2005 (as amended);
   
8. the applicant meets such other requirements as may be specified.

Information/Documents to be submitted with respect to an application for Insurance Broker

1. Duly dated and signed Application Form for Insurance Broker.
   
2. Prescribed Processing and/or Annual Fee(s).
   
3. Details of any other licence(s)/registration(s) which the Applicant holds and name of the licence(s) and issuing authority, and any restriction(s) imposed.
   
4. Business Plan including: (i) – Introduction and Background; (ii) – Business objective, strategy and proposed activity; (iii) – Organisation Chart; (iv) – Target market(s) and client(s) profile; (v) – Mode(s) of financing; (vi) – Three year Financial Forecasts (Balance Sheet, Profit and Loss Account, and Cash Flow Statement); and (vii) – Any other relevant information.
   
5. Details of the arrangements to be put in place with respect to the day-to-day administration and management.
   
6. CV of senior officers, and Personal Questionnaire Form(s) for Directors, Managing Director/CEO, Compliance Officer, MLRO and Deputy MLRO
   
7. Confirmation that the Applicant shall implement a manual of internal control and compliance procedures, once it is licensed/authorised.
   
8. Certified true copy of the Certificate of Registration/Incorporation, Constitution/M&A (if any), Trust Deed, and/or other statutory documents submitted/required for the registration/incorporation of the Applicant.
   
9. Latest Annual Return and Audited Financial Statements, as available.
   
10. If Applicant’s Secretary is a firm or corporation, necessary approval from the Registrar of Companies to be submitted.
    
11. Details of professional indemnity insurance cover.
    
12. Financial/Capital Requirement under relevant regulations and rules.
    
13. In case of registration and continuation of an Applicant/Company incorporated outside Mauritius or a foreign company, additional documents as may be required under the Companies Act 2001 to be submitted.

Mauritius : External Insurance Business

"External Insurance Business", subject to such other restrictions as may be prescribed, means insurance business which is restricted under section 11 of the Insurance Act 2005 to only non-Mauritian policies, and includes captive insurance business.

Licence for External Insurance Business

An application for a licence for External Insurance Business shall be made to the Financial Services Commission (FSC). The FSC will, if it is satisfied that an application under section 10 of the Insurance Act 2005 ought to be granted, grant the application and on payment of the prescribed fee, issue a licence authorising the applicant to carry on such category of insurance business in respect of such class of insurance policies as may be specified in the licence.

Stated capital and deposit

1. An insurer shall in respect of its insurance business at all times –
   
   (a) have and maintain such stated capital as may be prescribed; and
   (b) make and maintain a deposit in such amount, and with such custodian as may be prescribed.
2. An insurer shall make good forthwith any part –
   
   (a) of the stated capital that is impaired by losses or otherwise;
   (b) of the deposit which on any balance sheet date is valued as less than the prescribed amount.
3. A deposit shall be part of the assets of the insurer but shall not –
   
   (a) be capable of being transferred, assigned, or encumbered with a mortgage or other charge, by the insurer;
   (b) be available for the discharge of a liability of the insurer, other than a liability in respect of a Mauritian policy; or
   (c) be liable to attachment in execution of a judgment, except a judgment obtained by a policyholder of the insurer in respect of a debt due upon a Mauritian policy and which debt the policyholder has been unable to recover in any other way.
4. Notwithstanding any provision of the Companies Act, an insurer may with the approval of the FSC maintain the minimum capital requirement in a currency other than the Mauritian rupee.

Information/Documents to be submitted by the applicant with respect to an application for External Insurance Business:

1. Duly dated and signed Application Form for External Insurance Business along with authorisation to any regulatory body, law enforcement body or financial institution, in Mauritius or in a foreign country to release to the Financial Services Commission (FSC) any information about the applicant, and any of its promoters, officers or controllers, (whose written consent should be enclosed), for use in relation to an application with the FSC and for the enforcement of the applicable laws
2. Prescribed Processing Fee (USD 1,000) and/or Annual Fee (USD 1,500).
3. Details of any other licence(s)/registration(s) which the Applicant holds and name of the licence(s) and issuing authority, and any restriction(s) imposed.
4. Business Plan including: (i) – Introduction and Background; (ii) – Business objective, strategy and proposed activity; (iii) – Organisation Chart; (iv) – Target market(s) and client(s) profile; (v) – Mode(s) of financing; (vi) – Three year Financial Forecasts (Balance Sheet, Profit and Loss Account, and Cash Flow Statement); and (vii) – Any other relevant information.
5. An Applicant's business plan or feasibility study must be conducted or certified by an actuary to be in accordance with Section 10 of the Insurance Act 2005.
6. Details of the arrangements to be put in place with respect to the day-to-day administration and management.
7. CV of senior officers, and Personal Questionnaire Form(s) for Directors, Managing Director/CEO, Compliance Officer, MLRO and Deputy MLRO (as applicable).
8. Confirmation that the Applicant shall implement a manual of internal control and compliance procedures, once it is licensed/authorised.
9. Certified true copy of the Certificate of Registration/Incorporation, Constitution/M&A (if any), Trust Deed, and/or other statutory documents submitted/required for the registration/incorporation of the Applicant.
10. Latest Annual Return and Audited Financial Statements, as available.
11. If Applicant’s Secretary is a firm or corporation, necessary approval from the Registrar of Companies to be submitted.
12. Financial/Capital Requirement under relevant regulations and rules
13. Confirmation from a qualified legal practitioner under the laws of Mauritius that the constitutive documents and supplemental information submitted in connection with the application are in accordance with Mauritian laws.
14. Copy of material contract(s)/agreement(s) to be entered between the Applicant and other party/functionary.
15. In case of registration and continuation of an Applicant/Company incorporated outside Mauritius or a foreign company, additional documents as may be required under the Companies Act 2001 to be submitted.
16. Submission of proposed reinsurance arrangements.
17. Details of measures to be put in place with regards to infrastructure, security and safety of securities/assets.
18. Details of arrangements to ensure confidentiality, security and reliability of client(s) information.
19. Copy of any promotional material(s) to be used in connection with the proposed business of the Applicant.
20. Applicant to confirm that it will keep an effective complaints handling process in the course of conduct of its business.

Mauritius : Investment Dealer (Full Service Dealer excluding Underwriting)

An Investment Dealer (Full Service Dealer excluding Underwriting) is authorised to:

1. act as an intermediary in the execution of securities transactions for clients;
2. trade in securities as principal with the intention of reselling these securities to the public;
3. give investment advice which is ancillary to the normal course of his business activities; and
4. manage portfolios of clients.

Licensing conditions for Investment Dealer (Full Service Dealer excluding Underwriting)

The Financial Services Commission (“FSC”) shall not grant a licence for Investment Dealer (Full Service Dealer excluding Underwriting)

1. unless it is satisfied that the applicant meets all the requirements of the Securities (Licensing) Rules 2007, and in particular the minimum stated unimpaired capital requirement.
   
2. unless it is satisfied that the applicant has established procedures designed to prevent conflicts of interest and the use of inside information by an effective segregation of its different activities.
   
3. The procedures mentioned in paragraph 2 shall ensure that the investment decisions concerning the portfolio of clients shall not be communicated or be available to any unauthorised third party.

Minimum stated unimpaired capital requirements for Investment Dealer (Full Service Dealer excluding Underwriting)

1. Subject to paragraph 2, the applicant for an Investment Dealer (Full Service excluding Underwriting) licence shall maintain a minimum stated unimpaired capital of MUR1,000,000 (Rs) or equivalent
   
2. The minimum stated unimpaired capital shall be fully paid and no amount shall be due or payable.
   
3. The licensee shall inform the FSC immediately where its minimum stated unimpaired capital falls below the minimum required.

Application for a Licence as an Investment Dealer

1. The person applying for a licence as an investment dealer shall file the following information and documents with the FSC –
   
   (a) certified copy of the resolution of the board of directors authorising two members of the board to sign the application and appointing an officer responsible and a manager responsible for any branch office;
   
   (b) copy of the constitution or similar constitutive document;
   
   (c) complete description of the proposed activities: type of customers, products and services to be offered (brokerage, CIS securities, portfolio management, etc.);
   
   (d) amount, type and distribution of the shares of the applicant, including the list of shareholders and the number of shares owned directly or indirectly;
   
   (e) if the applicant wishes to offer portfolio management services, a copy of a model of the contract to be signed between the investment dealer and the client;
   
   (f) copy of the contract relating to internet trading, if any;
   
   (g) copy of the internal procedures manual;
   
   (h) details of membership, applications for membership or shareholding in a securities exchange, a clearing and settlement facility, a securities trading system or a self-regulatory organisation or of applications for membership;
   
   (i) detailed description of systems and procedures to prevent conflicts of interest, money laundering and financing of terrorism;
   
   (j) personal questionnaire form specified in the FSC Rules for every officer or proposed officer, shareholder and beneficial owner of the applicant.
   
   
2. Subject to paragraph 3, in the case where the person applying for the licence is not yet legally constituted, the information or the documents that would apply to a legally constituted person may be filed in draft form.
   
3. In the case mentioned in paragraph 2, the FSC shall only grant approval in principle for a licence and the licence shall only be issued when the FSC has received final documents and information from the applicant and is satisfied that the final information and documents are consistent with the drafts filed.

Mauritius : Investment Dealer (Broker)

An Investment Dealer (Broker) is authorised to:

1. execute orders for clients;
2. manage portfolios of clients; and
3. give advice on securities transactions to clients.

Licensing conditions for Investment Dealer (Broker)

The Financial Services Commission (“FSC”) shall not grant a licence for Investment Dealer (Broker) unless it is satisfied that the applicant meets all the requirements of the Securities (Licensing) Rules 2007, and in particular the minimum stated unimpaired capital requirement.

Minimum stated unimpaired capital requirements for Investment Dealer (Broker)

1. Subject to paragraph 2, the applicant for an Investment Dealer (Broker) licence shall maintain a minimum stated unimpaired capital of MUR700,000 (Rs) or equivalent
   
2. The minimum stated unimpaired capital shall be fully paid and no amount shall be due or payable.
   
3. The licensee shall inform the FSC immediately where its minimum stated unimpaired capital falls below the minimum required

Application for a Licence as an Investment Dealer

1. The person applying for a licence as an investment dealer shall file the following information and documents with the FSC –
   
   (a) certified copy of the resolution of the board of directors authorising two members of the board to sign the application and appointing an officer responsible and a manager responsible for any branch office;
   
   (b) copy of the constitution or similar constitutive document;
   
   (c) complete description of the proposed activities: type of customers, products and services to be offered (brokerage, CIS securities, portfolio management, etc.);
   
   (d) amount, type and distribution of the shares of the applicant, including the list of shareholders and the number of shares owned directly or indirectly;
   
   (e) if the applicant wishes to offer portfolio management services, a copy of a model of the contract to be signed between the investment dealer and the client;
   
   (f) copy of the contract relating to internet trading, if any;
   
   (g) copy of the internal procedures manual;
   
   (h) details of membership, applications for membership or shareholding in a securities exchange, a clearing and settlement facility, a securities trading system or a self-regulatory organisation or of applications for membership;
   
   (i) detailed description of systems and procedures to prevent conflicts of interest, money laundering and financing of terrorism;
   
   (j) personal questionnaire form specified in the FSC Rules for every officer or proposed officer, shareholder and beneficial owner of the applicant.
   
   
2. Subject to paragraph 3, in the case where the person applying for the licence is not yet legally constituted, the information or the documents that would apply to a legally constituted person may be filed in draft form.
   
3. In the case mentioned in paragraph 2, the FSC shall only grant approval in principle for a licence and the licence shall only be issued when the FSC has received final documents and information from the applicant and is satisfied that the final information and documents are consistent with the drafts filed.

Mauritius : Management Company

A Management Company ("MC") is licensed by the Financial Services Commission (“FSC”) under section 77 of the Financial Services Act 2007 (“FSA 2007”) to set up, manage and provide nominee and other services to a corporation (which proposes to apply for, or holds a Global Business Licence; and such class of corporation as may be prescribed) or act as corporate trustee or qualified trustee under the Trusts Act 2001.

Pursuant to section 76 of the FSA 2007, only a Management Company is allowed to act as a Registered Agent for Category 2 Global Business Companies (GBC 2). An MC may provide nominee services through nominee companies approved by the FSC under section 78 of the FSA 2007.

A Management Company may, with the approval of the FSC under the FSA 2007 or under relevant Acts, provide the following services:

• administration of collective investment companies set up in Mauritius or in other jurisdictions other than Mauritius,
  
• back office accounting and fiduciary services in respect of structures set up in jurisdictions other than Mauritius under an appropriate delegation agreement.

Application for a Management Licence

An application for a management licence is subject to the regulation of financial services under Part IV of the FSA 2007.

Information/Documents to be submitted to the FSC

1. Duly dated and signed Application Form.
2. Prescribed Processing and/or Annual Fee(s).
3. Details of any other licence(s)/registration(s) which the Applicant holds and name of the licence(s) and issuing authority, and any restriction(s) imposed.
4. Business Plan including:
   
   (i) – Introduction and Background;
   (ii) – Business objective, strategy and proposed activity;
   (iii) – Organisation Chart;
   (iv) – Target market(s) and client(s) profile;
   (v) – Mode(s) of financing;
   (vi) – Three year Financial Forecasts (Balance Sheet, Profit and Loss Account, and Cash Flow Statement); and
   (vii) – Any other relevant information.
   
   
5. Details of the arrangements to be put in place with respect to the day-to-day administration and management.
6. CV of senior officers, and Personal Questionnaire Form(s) for Directors, Managing Director/CEO, Compliance Officer, MLRO and Deputy MLRO (as applicable).
7. Confirmation that the Applicant shall implement a manual of internal control and compliance procedures, once it is licensed / authorised.
8. Certified true copy of the Certificate of Registration/Incorporation, Constitution/M&A (if any), Trust Deed, and/or other statutory documents submitted/required for the registration/incorporation of the Applicant.
9. Latest Annual Return and Audited Financial Statements, as available.
10. If Applicant’s Secretary is a firm or corporation, necessary approval from the Registrar of Companies to be submitted.
11. Details of professional indemnity insurance cover.
12. Financial/Capital Requirement under relevant regulations and rules.
13. In case of registration and continuation of an Applicant/Company incorporated outside Mauritius or a foreign company, additional documents as may be required under the Companies Act 2001 to be submitted.
14. Draft copy of standard material contract(s) and agreement(s) to be executed in connection with the operation of the business activity (including client(s) vetting forms, wherever applicable).
15. Details of measures to be put in place with regards to infrastructure, security and safety of securities/assets.
16. Name of law practitioner, qualified under the Law Practitioners’ Act 1984 in Mauritius, retained by Applicant to vet all applications for Category 1 and Category 2 Global Business Licences.
17. Details on whether the Applicant will operate as a stand alone and full-fledged Management Company or a managed operation with an existing Management Company.
18. Details of arrangements to ensure confidentiality, security and reliability of client(s) information.
19. Copy of any promotional material(s) to be used in connection with the proposed business of the Applicant.
20. Documentary evidence of formal working arrangements which exist with business partners of the Applicant.
21. Applicant to submit information about the relevant competence/experience of its Directors/Senior Officers in Company and Trust formation, Administration and Management. In the event that the Directors/Senior Officers also hold employment in another institution/company/professional activity, they should disclose, and provide details as to how they will avoid any potential conflict of interest.
22. Applicant must undertake that it will have a duty of compliance to fulfill vis-à-vis the FSC with regard to clients' network and operations, and any infringement thereto must be forthwith notified to the Commission. It has to undertake furthermore that it will, at all times, ensure that the 'Four-Eyes Principle' is adhered to in the conduct of its business.
23. Applicant to specify whether it intends to act also as corporate trustee or qualified trustee under the Trusts Act 2001. If, in the affirmative, it has to demonstrate awareness and acceptance of duties and responsibilities for acting in such capacity with respect to the relevant trust(s).
24. The applicant should submit evidence of the source of Capital/Fund to the contributed to the Company (whether proprietary, non-proprietary or others).
25. The directors, shareholders and officers of the Applicant may be required to submit a morality certificate.

Mauritius : Investment Adviser (Unrestricted)

An Investment Adviser (Unrestricted) is authorised to manage, under a mandate, portfolios of securities and give advice on securities transactions through printed materials or any other means.

Licensing conditions for Investment Adviser (Unrestricted)

In order to obtain an unrestricted licence, an investment adviser shall provide sufficient justification to the Financial Services Commission (“FSC”) as to the competence of the persons who will be responsible for investment advice and the management of portfolios.

Minimum stated unimpaired capital requirements for Investment Adviser (Unrestricted)

1. Subject to paragraph (2), the applicant for a licence shall maintain a minimum stated unimpaired capital of MUR600,000 (Rs) or equivalent
2. The minimum stated unimpaired capital shall be fully paid and no amount shall be due or payable.
3. Where an investment adviser license is granted to an individual, he shall demonstrate to the FSC that he has sufficient means to ensure the continuity of his business and the provision of adequate services to his clients.
4. The licensee shall inform the FSC immediately where its minimum stated unimpaired capital falls below the minimum required

Application for a Licence as Investment Adviser

1. The person applying for a licence as an investment adviser shall file the following information and documents with the FSC –
   
   (a) certified copy of the resolution of the board of directors authorising two members of the board to sign the application and appointing an officer responsible and a manager responsible for any branch office;
   (b) copy of the constitution or similar constitutive document;
   (c) complete description of the proposed activities: type of customers, products and services to be offered (brokerage, CIS securities, underwriting, portfolio management, etc.);
   (d) amount, type and distribution of the shares of the applicant, including the list of shareholders and the number of shares owned directly or indirectly;
   (e) if the applicant wishes to offer portfolio management services, a copy of a model of the contract to be signed between the investment adviser (unrestricted) and the client;
   (f) copy of the contract relating to internet trading, if any;
   (g) copy of the internal procedures manual;
   (h) details of membership, applications for membership or shareholding in a securities exchange, a clearing and settlement facility, a securities trading system or a self-regulatory organisation or of applications for membership;
   (i) detailed description of systems and procedures to prevent conflicts of interest, money laundering and financing of terrorism;
   (j) personal questionnaire form specified in the FSC Rules for every officer or proposed officer, shareholder and beneficial owner of the applicant.
   
   
2. In the case of an application for a licence as an investment adviser where the applicant is not constituted as a company, only paragraphs 1 (c), (e), (f), (g), (i) and (j) shall apply.
   
3. Subject to paragraph 4, in the case where the person applying for the licence is not yet legally constituted, the information or the documents that would apply to a legally constituted person may be filed in draft form.
   
4. In the case mentioned in paragraph 3, the FSC shall only grant approval in principle for a licence and the licence shall only be issued when the FSC has received final documents and information from the applicant and is satisfied that the final information and documents are consistent with the drafts filed.

Mauritius : Offshore Fund / Collective Investment Scheme - Expert Fund

An “Expert Fund” is defined as a fund which is only available to expert investors. A Collective Investment Scheme (“CIS”) may apply to the Financial Services Commission (“FSC”) under the Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008 (“Regulations”) for authorisation as an expert fund.

Such application must include the following documents / information –

• constitutive document of the scheme;
  
• measures taken to prevent money laundering and financing of terrorism;
  
• latest audited financial statements;
  
• a copy of the offering document given to potential investors; and
  
• if applicable, information on the CIS manager as requested in regulation 6.

Conditions applicable to an Expert Fund

1. An expert fund shall only be available to expert investors.
   
2. An expert fund may appoint a manager who, where appointed, shall be the holder of -
   
   (a) a CIS manager licence; or
   
   (b) a licence issued by a regulatory body in a jurisdiction having comparable regulation as Mauritius for investor protection (e.g. FSA in UK or SEC in US)
   
   
3. The CIS manager of an expert fund need not be resident in Mauritius.
   
4. The Board of the fund or the CIS manager where appointed must satisfy itself that the fund is and continues to be managed in accordance with the fund’s constitutive documents.
   
5. The Board of the fund, or the CIS manager where appointed, shall be responsible for ensuring that the provisions of these Regulations applicable to expert funds are complied with.
   
6. The expert fund shall accept as investors in the fund, only such persons as the Board or CIS manager where appointed is satisfied are expert investors.
   
7. The offering document or any other similar document of an expert fund shall -
   
   (a) contain a statement to the effect that the expert fund shall be available only to expert investors,
   
   (b) contain in a prominent position, the definition of an expert investor; and
   
   (c) shall have the following statements in a prominent position -
   
   "Investors in [name of the expert fund] are not protected by any statutory compensation arrangements in Mauritius in the event of the fund's failure."
   
   "The Mauritius Financial Services Commission does not vouch for the financial soundness of the fund or for the correctness of any statements made or opinions expressed with regard to it."
   
   
8. In accordance with section 30 of the Financial Services Act 2007 the audited accounts of the expert fund shall be filed by the scheme, the CIS manager or the CIS Administrator as appropriate.

Expert Investor

An “expert investor” means-

(i) an investor who makes an initial investment, for his own account, of no less than US$ 100 000; or

(ii) a sophisticated investor as defined in the Securities Act 2005 or any similarly defined investor in any other securities legislation (e.g. an accredited investor under US federal securities laws)

Exemptions for an Expert Fund

An expert fund, subject to authorisation from the FSC, shall be exempt from the provisions of the Regulations except for regulations 78 to 81 and Part I and XII.

"Serious Concerns" over hedge fund risks, concludes new research

As regulation of the hedge fund industry moves closer, and negotiations begin over the character of the Directive on Alternative Investment Fund Managers (AIFM), new research highlights serious worry over hedge funds and the risks to investors.

• Results raise serious concerns about investors’ ability to make the right investment choices – meaning that increasing investor protection and curbing unnecessary risks should be a priority for regulators
• Investors naïvely chase performance at all costs, irrespective of the risk of different hedge fund investment styles
• Style volatility, and investors’ inability to time switching in and out of different investment styles, exposes them to unforeseen risk
• Research raises concern about the efficient allocation of capital and implications for hedge fund regulation

New research from the European School of Management & Technology (ESMT), in collaboration with the Rotterdam School of Management, highlights a worrying disconnect in the behaviour of investors in hedge funds and the subsequent performance of their investments, typically resulting in poor or volatile performance and exposure to unnecessary risk. In a study of hedge fund performance according to investment style, covering 1,543 hedge funds over 10 years, ESMT’s research raises disturbing questions about the way that hedge fund investors invest and their willingness to actively chase performance at all costs, irrespective of the potential level of risk to which they are exposed. As a result, the authors of the research take the view that greater regulation is necessary to protect investors and that the provisions of the controversial Alternative Investment Fund Managers (Directive) ought to be welcomed.

The research reveals that investors systematically reward investment styles that have performed well over the previous three quarters, effectively substituting different investment styles for one another regardless of whether they are taking on higher levels of risk. This results in the top performing investment style attracting nearly $300 million more capital than the investment style that performs most poorly. A differential of 1 per cent in the performance of a given style attracts a further $9 million of investor funds. However, the volatility of hedge fund styles means that high performing investment styles often go on to underperform other investment styles in subsequent quarters.

The importance of ESMT’s research is that it is the first of its kind to show correlated investment behaviour based on style. Previous studies have not separated style-based investing from those investors rewarding the performance of individual funds or managers. ESMT calculates that approximately 13 per cent of total net asset growth can be attributed to “style-based investing”, and 20 per cent of the capital that is committed to the hedge fund sector.

The ramifications of style-based investment are significant, with the research suggesting that focusing on investment styles results in a potential inefficient allocation of capital across the hedge fund sector. The danger is that as increasing amounts of capital chase given styles (potentially attracting more managers into that style in turn), momentum investment starts to take hold, forcing up the price of overheated securities.

Guillermo Baquero, Assistant Professor at the European School of Management & Technology (ESMT) and an author of the research comments:
"We have a two-fold issue here: whether investors’ naivety is leaving them overly exposed to risk they are not properly evaluating, and whether the growth of the hedge fund industry combined with that naivety means the sector poses a threat to financial stability. The fact that investors appear unable to recognise the risks of different styles and chase performance at all costs could leave them vulnerable and unprotected. This is exacerbated at the individual fund level by the opacity and lack of regulation of the sector, which already means that there are significant discrepancies in the level and quality of information reported.

"Now is the time to discuss deep, substantial and effective regulation that will genuinely be of use to investors and protect our financial system for the future."

The fact that previously winning investment styles are subject to subsequent weak performance leads ESMT to conclude that a problem may lie within the simple movement of money itself. On a pure cash-flow weighted model, subsequent investor returns are more adversely affected than those recorded when style investment returns are equally weighted. In short, it is clear that the wall of cash being committed to a particular winning style only exacerbates later poor performance. This suggests that hedge fund strategies are not easily scalable and opportunities to profit rapidly diminish as more investor capital is committed.

Guillermo Baquero comments:
“Given that the minimum investment thresholds for hedge fund investing have come down substantially in recent years, expanding the market and opening it up to retail investors, it is important to consider the level of risk hedge funds – and misinformed capital flows – may pose.

“We already know from the financial crisis that hedge funds were previously making increasingly directional bets in a rising market, which forced them into a situation of having to painfully unwind their positions. This in turn exerted huge downward pressure on already fragile markets. If naïve investment combines with an increasingly expanding industry, systemic risk may yet be posed in the future by the larger funds. We need financial reform that will anticipate the threats of the future, as well as deal with those of the past. Increasing regulation and investor communication around hedge funds will help considerably in making overall investment much smarter.”

‘Winning’ and ‘losing’ hedge fund styles: performance does not persist

ESMT’s research firstly reveals that there is no relationship between current and subsequent performance of a given investment style, and secondly calculates the impact on investor returns.

Looking at the two top performing and two worst performing investment styles in each quarter over the study’s 10-year time horizon reveals considerable volatility in the relative performance of different investment styles. For example, one of the most volatile investment strategies, Dedicated Short Bias, came first or second for 39% of the period surveyed. But this same strategy gave the worst or second worst returns for 55% of the time.

While strategies like emerging markets, dedicated short bias, and managed futures are particularly well-known for their volatility, ESMT’s research reveals that the volatility of hedge fund returns is true across the spectrum. When analysing the performance of different styles in the immediately following quarter, the research found that half of investment categories typically went on to outperform the winning style from the previous quarter. When comparing winners and losers over several subsequent quarters, the research finds that relative performance even reverses – with the losers increasingly outperforming the previous winners.

What is more, investors are also highly likely to reward very extreme movements in style, often associated with the riskiest areas of hedge fund investment. ESMT’s research reveals that if a particular style moves from bottom to top performer in a given quarter, it is rewarded with 6 per cent of investor inflows, and 12 per cent of capital over the following three quarters. Also, investors react strongly to sequences of relative performance.

Guillermo Baquero explains:
“Naturally, investors will be drawn to investments that demonstrate more favourable returns, yet our research acts as a cautionary tale about falling into the age-old trap of trusting to past performance. Despite the perception that hedge fund investors are more sophisticated, our research suggests that this is not the case and that investors are overly reliant on yesterday’s performance. This is particularly worrying at a style level as investors are, in effect, moving in and out of strategies irrespective of whether they are exposing themselves to higher or inappropriate levels of risk for their needs. Evidence of an uninformed supply of capital flooding the market raises serious questions both about the level of risk to which investors are personally exposed, and the potential level of risk brought to financial markets as a whole”.

“Chasing the winners”: investors fail to anticipate future performance

ESMT’s research then goes on to track aggregate dollar flows from investors as a result of their rewarding (or punishing) different investment styles. The research finds that investor inflows are more heavily weighted to the particular styles with the highest index returns in the previous three quarters.

However, the research clearly reveals that money flows fail to anticipate future performance. By the fourth quarter, poor performing investment styles – that had received net negative inflows of investor capital – increasingly outperform. In short, investors are unable to time their investments effectively.

ESMT’s research concludes that investors’ inability to time their capital effectively means they either misread the information they consume on given investment styles, or that the information to which they are exposed is not representative enough to act as a useful benchmark.

Guillermo Baquero concludes:
“These results raise serious concerns about investors’ ability to make the right allocation choices and suggest that increasing investor protection and curbing unnecessary risks and speculative activity of hedge funds should be a priority for regulators. In line with these results, the proposed new rules by European member states on tighter restrictions for hedge funds are a milestone. The new rules would include registration requirements, compensation guidelines and compel managers to regularly disclose the use of leverage, short sales and derivatives.

“Whilst no one would wish to reduce hedge funds to a mere offshoot of the mutual fund sector, the industry needs to take responsibility for its increasing size, role, and attraction for much more mainstream investors. Cross-border marketing restrictions or “third country” rules remain controversial, particularly with the UK and US. Yet, overcoming the inconsistencies in cross-border regulatory regimes is vital to frame the regulatory debate on hedge funds cor-rectly and effectively and to ensure the full protection of investors.”

Hedge Funds Research Press Release

IDS Group launches fund administration in Mauritius

Investment Data Services (IDS) Group, the global specialist investment administrator, has partnered with LC Abelheim (LCA), a Mauritian based Management Company to offer fund administration to the Indian Ocean region.

Together IDS and LCA will be able to offer 3rd party fund administration services of an international standard. IDS uses the Pacific Funds Administration system and has an excellent reputation for providing services for hedge funds and other specialist investment funds.

Ian Hamilton, Chairman of IDS Group said: "Mauritius is a natural expansion market due to its strong links with the eastern markets, its healthy financial market successes and strong business ethics. Mauritius has an attractive administration market due to the lack of many international specialists and the local industry not utilizing specialist administration systems intensively. Mauritius being only 3 hours ahead of Europe makes it easy to do business with Africa and Europe. Its growing offshore centre holds a wealth of opportunity within the specialist administration sector."

Aziza Moraby, Managing Director of LCA is delighted to be able to offer a world class service to Mauritian and international clients with the support of IDS: "We are off to a good start with fifteen funds from Skybound, a client of LCA. This is a good foundation for a solid business. We expect strong demand for the services offered as this is a highly professional offering that utilizes best global practices thereby ensuring that the more rigorous demands of investors in the post Madoff era are satisfied."

The IDS Group is in the process of expanding their international footprint and has offices in South Africa, Malta and the UK.

Mauritius vacancies : ABC Banking Corporation - Are you up for the challenge? [Deadline 15 June 2010]

Venture Capital and Private Equity Performance Survey of South Africa - 2009

The South African private equity and venture capital industry remained in a relatively healthy position in 2009. The latest report from KPMG in South Africa and SAVCA examines the South African PE market during this period.

Deloitte 2010 TMT Global Security study

Bounce Back

Following last year’s widespread cost-cutting initiatives due to the global economic downturn, technology, media and telecommunications (TMT) organization’s spending on security appears to be bouncing back―albeit modestly―in anticipation of renewed economic growth. The key question is whether these relatively small budget increases will make up for the ground lost during the recession.

Scope

The study is based on in-depth research and detailed interviews with nearly 150 TMT organizations around the world. This year’s research has been part of a global, cross industry program which has provided new and valuable insights about security in the TMT industry as compared with other industries.

Senior professionals in Deloitte’s Information & Technology Risk Services practice conducted focused discussions with information technology executives of leading global technology, media and telecommunications organizations.

Key findings of the survey:

At the time of the 2009 Global Security Study, the economy was in the deepest depths of a global recession and organizations were reviewing and cutting costs everywhere they could–including security.

The damage done by last year’s budget cuts is reflected this year in respondents’ responses: 57 percent of organizations polled believe they are falling behind or still catching up in dealing with security threats. Only one-third of the respondents believe they are “on plan”–compared with 60 percent in the 2009 study.

• Cloud computing could fundamentally change how IT services are delivered–but only if its security and privacy challenges can be resolved.
• Combating organized crime: Information security is now an issue of national security.
• Security in mergers and acquisitions: The right approach to information security can improve business agility.
• Maintaining trust online: Organizations need to protect their digital assets in a world where thieves and cheats are just a click away.
• Nature versus nurture: Internal security risks and human error can never be entirely eliminated. But with the right combination of training and data protection, they can be reduced to manageable levels.
• Weak links: To ensure a high level of security across the entire value chain, technology, media and telecommunications organizations must take an active role in identifying and verifying that their partners’ capabilities and controls are up to the challenge.
• More than IT: Information security is being recognized as a business issue, not just an IT issue.

2010 TMT Global Security study

Mauritius Leasing launches "Real Estate Leasing"

The Real Estate sector in Mauritius is about to experience a new wave of change. The Mauritius Leasing Company Limited announced today the launch of "Real Estate Leasing", yet another pioneering product in the portfolio of Mauritius Leasing. With this launch, the thriving property industry can now count on a new pillar to sustain its growth and make ownership more widely accessible to larger spheres of the community.

"Mauritius Leasing is proud to introduce such an innovative concept on the market which opens up further avenues for property investments in Mauritius", said Ashraf Esmael, General Manager of Mauritius Leasing.

"Up till now, Bank Loans were, by far, the main source of funding for acquiring property. With leasing facilities for property investments, businesses and households will now have more funding options to look at rather than the traditional methods. Real estate has been booming but its funding infrastructure has been lagging behind for decades." added Mr Esmael.

With Real Estate Leasing, the market is poised to experience new momentum with a new line of activity that can cater for tailor made solutions with regards to property investments.

The ML Real Estate Leasing is a powerful alternative to bank loans for property acquisition. It has been developed to appeal to potential home and land buyers, buyers of commercial spaces and other properties, property developers and real estate intermediaries.

At this moment, however, the real estate leasing facility excludes Integrated Resort Scheme [IRS] villas, building and other property development projects, which are in construction and marketing stage. This may come at a later stage.

UK : FRC issues new Governance Standards for Listed Companies

The Financial Reporting Council (FRC) has today introduced changes to the UK Corporate Governance Code (formerly known as the Combined Code) to help company boards become more effective and more accountable to their shareholders.

Changes include a clearer statement of the board’s responsibilities relating to risk, a greater emphasis on the importance of getting the right mix of skills and experience on the board, and a recommendation that all directors of FTSE 350 companies be put up for re-election every year.

Introducing the new Code Baroness Hogg, the FRC Chairman, said:

“Under my predecessor’s wise leadership, the FRC responded to the financial crisis by examining the questions it raised about corporate governance and thoroughly reviewing the Code. We have now reconfirmed its core principles and the flexibility provided by the ‘comply or explain’ approach.”

“The changes we have made are designed to reinforce board quality, focus on risk and accountability to shareholders. In return, we look to see a step up in responsible engagement by shareholders under the Stewardship Code, on which we have consulted and aim to publish by the end of June.”

Changes to the Code include:

• To improve risk management, the company‘s business model should be explained and the board should be responsible for determining the nature and extent of the significant risks it is willing to take.
• Performance-related pay should be aligned to the long-term interests of the company and its risk policy and systems.
• To increase accountability, all directors of FTSE 350 companies should be put forward for re-election every year.
• To promote proper debate in the boardroom, there are new principles on the leadership of the chairman, the responsibility of the non-executive directors to provide constructive challenge, and the time commitment expected of all directors.
• To encourage boards to be well balanced and avoid “group think” there are new principles on the composition and selection of the board, including the need to appoint members on merit, against objective criteria, and with due regard for the benefits of diversity, including gender diversity.
• To help enhance the board’s performance and awareness of its strengths and weaknesses, the chairman should hold regular development reviews with each director and FTSE 350 companies should have externally facilitated board effectiveness reviews at least every three years.

The UK Corporate Governance Code (formerly known as the Combined Code) sets out standards of governance for listed companies. Companies are required either to follow the Code or explain how else they are acting to promote good governance.

The new edition of the Code will apply to financial years beginning on or after 29 June 2010.

India - Easy Exit Scheme, 2010

In order to give an opportunity to the defunct companies, for getting their names struck off from the Register of Companies, the Ministry of Corporate Affairs has decided to introduce a Scheme namely, “Easy Exit Scheme, 2010” under Section 560 of the Companies Act, 1956.

2. The Scheme does not inter-alia cover the listed companies, section 25 companies, vanishing companies, companies under inspection/investigation, companies against which prosecution for a non-compoundable offence is pending in court, companies having outstanding public deposits or secured loan or dues towards banks and financial institutions or any other Government Departments etc. or having management dispute or company in respect of which filing of documents have been stayed by court or CLB or Central Government or any other competent authority.

3. Any defunct company desirous of getting its name struck off the Register under Section 560 of the Companies Act, 1956 shall make an application without fee in the Form EES, 2010 electronically on the Ministry of Corporate Affairs portal namely http://www.mca.gov.in/ along with affidavit, Indemnity Bond and a Statement of Account duly certified by the statutory auditor or a Chartered Accountant in whole time practice.

4. The scheme will be in operation from 30th May, 2010 to 31st Aug, 2010.

5. For details refer General Circular No: 2/2010 dated 26.05.2010 available here

6. Availing the benefit of the Scheme will prevent companies from prosecution and
other legal action.

India - Company Law Settlement Scheme, 2010.

It has been observed that a large number of companies are not filing their due documents timely with the Registrar of Companies. Due to this, the records available in the electronic registry are not updated and thereby are not available to the stakeholders for inspection. Further, due to non-filing of the documents on time, companies are burdened with additional fee and facing the prosecutions also

2. There are many companies, who have not increased their paid up capital up to the threshold limit provided in sub-section (3) and sub-section (4) of Section 3 of the Companies Act, 1956

3. In order to give an opportunity to the defaulting companies to enable them to make their default good by filing belated documents and to become a regular compliant in future, the Ministry of Corporate Affairs has introduced a Scheme namely, “Company Law Settlement Scheme, 2010,” for condoning the delay in filing documents with the Registrar, granting immunity from prosecution and charging additional fee of 25 percent of actual additional fee payable for filing belated documents under the Companies Act, 1956 and the rules made there under

4. After granting the immunity, the Registrar concerned shall withdraw the prosecution(s) pending if any before the concerned Court(s)

5. At the conclusion of the Scheme, the Registrar shall take necessary action under the Companies Act, 1956 against the companies who have not availed this Scheme and are in default in filing of documents in a timely manner

6. The scheme will be in operation from 30th May, 2010 to 31st Aug, 2010

7. For details refer General Circular No: 1/2010 dated 26.05.2010 available here

8. Availing the benefit of the Scheme will prevent companies from prosecution and other legal action

FSC : Suspension of six Global Business Licences

The Financial Services Commission (the “Commission”) having reasonable grounds to believe that the revocation of the Global Business Licences issued to the undermentioned companies is necessary to protect the good repute of Mauritius as a centre for financial services and to protect investors, has in accordance with Section 74 of the Financial Services Act decided to initiate proceedings with a view to revoking the said licences:-

1. AEcnFX (Mauritius) Ltd
2. BASEL FINANCIAL INC.
3. FXCOMPANY FINANCIAL GROUP LTD
4. FXMarkets Ltd
5. FXOpen Investments Inc.
6. WORLD DERIVATIVES TRADERS LTD

The Global Business Licences of the above companies are being suspended forthwith.

Notice is given that where the above companies also hold an Investment Dealer Licence or Investment Adviser Licence, these licences are being suspended with immediate effect in accordance with Section 27(3) of the Financial Services Act.

Pursuant to Section 27(5) of the Financial Services Act, where a licence is suspended, the licensee shall cease to carry out the activity authorised by the licence.

Furthermore, the Chief Executive of the Commission having reason to believe that the above companies are carrying or are likely to carry out activities that may cause serious prejudice to the reputation of Mauritius has, in accordance with Section 75(2) of the Financial Services Act, ordered an inquiry into the activities of the above companies.

In addition, the Chief Executive of the Commission has, in accordance with Section 44(1) of the Financial Services Act, ordered that an investigation be conducted into the business of the above companies.

Mauritius Reiterates its Support to African Union’s Values

Mauritius reaffirms its commitment to the values of the African Union and its relentless efforts to bring unity, peace and prosperity in Africa, said the Minister of Foreign Affairs, Regional Integration and International Trade, Dr. Arvin Boolell, in his message to the nation on the occasion of Africa Day.

The 47th Anniversary of the Founding of the Organisation of the African Unity (OAU), now known as the African Union was celebrated yesterday all over Africa. The theme for Africa Day this year is “Building and Maintaining Peace through Sports in Africa”.

Minister Boolell commended the choice of the theme which he considered as apt as the continent will be hosting for the first time in history, the Soccer World Cup. The organisation of such a prestigious event in South Africa is a source of pride to the whole continent, said the Minister, noting that it is a golden opportunity for all Africans, particularly the African teams, to demonstrate to the world a sense of hospitality, fair play and openness. These are important facets of our African culture, he added.

The Minister observed that, since its creation, the Organisation of the African Unity has come a long way in promoting the values and principles enshrined in its Constitutive Act, particularly in the field of Peace and Security. The declaration of the Year 2010 by the African Union as the Year of Peace and Security bears testimony of the unflinching efforts it is pursuing in that direction, he stated.

Dr. Boolell also stressed the importance that Mauritius attaches to the work being carried out by the African Union, adding that the country is committed to lend its full support to assist the Organisation in moving forward its agenda.

It is recalled that immediately after its independence, Mauritius joined the Organisation of the African Unity, which on 11 July 2000 became the African Union.

Workshop addresses cyber security challenges

A two-day training workshop for Computer Emergency Response Team (CERT-MU)and Computer Incident Response Team (CIRT) is being held under the patronage of the National Cybercrime Prevention Committee at the Swami Vivekananda International Conference Centre, Pailles since yesterday.

The Committee is organising the training workshop to provide participants who are involved in cyber security activities with a better insight into the establishment and the functioning of the Computer Emergency/ Incident Response Team to enable the proactive and reactive handling and managing of computer incidents.

The National Cybercrime Prevention Committee is a working group established by government under the aegis of the Information and Communication Technology Authority with the mandate of addressing cyber crime issues. Its members comprise officials from the Ministry of Information and Communication Technology, the Attorney General's Office, the Ministry of Education and Human Resources, the Data Protection Office and the Police IT Unit. Its responsibilities include reviewing the state of play in fighting cyber crime and issuing implementable recommendations.

In his opening address yesterday morning, the Minister of Information and Communication Technology, Mr T. Pillay Chedumbrum, announced that a Controller of Certification Authority would be operationalised soon to enable the carrying out of secured electronic transactions at government and businesses level. This initiative is a step further in government’s efforts to support the development of a trustworthy and competitive information economy in Mauritius.

The Minister recalled measures already introduced to combat cyber crime and transform Mauritius into an information-secure society so that it drives its way towards earning recognition at international level as a secure regional Information and Communication Technology hub. They include the introduction of appropriate legislations relating to cyber security, and the setting up of instances such as the national Computer Emergency Response Team (CERT-mu), a police unit dedicated to fight cyber crimes, a unit to address security of Government Information Systems as well as a Data Protection Office to protect privacy of data. Mr Pillay Chedumbrum stated that other legislations such as regulations regarding Child Online Safety and Spam Control are in the pipeline to further strengthen the legal arsenal.

The ICT minister also stressed the importance of protecting the rights of the vast majority of people who use ICT for legitimate purposes. He affirmed government’s commitment to strike the right balance between the need for efficient enforcement and the need to protect the privacy and freedom of expression of citizens while ensuring that great care is taken to ensure fairness and prevent abusive restrictions. He added that the fight against cyber crime needs not only to harness efforts of the public and private sectors in Mauritius but also seek bilateral collaboration between countries and with relevant international bodies.

IOSCO Publishes Principles on Cross Border Supervisory Cooperation

The International Organization of Securities Commissions (IOSCO) has today published a set of Principles Regarding Cross-Border Supervisory Cooperation developed by its Technical Committee’s Task Force on Supervisory Cooperation.

These Principles, accompanied by a report and sample Memorandum of Understanding (Sample MOU), set out how securities regulators can better build and maintain cross-border cooperative relationships that will allow them to more effectively oversee financial services providers such as, investment advisers, asset managers, hedge funds, credit rating agencies, exchanges and clearing houses, that operate in multiple jurisdictions.

The objective of these Principles is to assist regulators in determining the form of cooperation best suited to the regulatory task at hand, and outline the critical issues that experience has shown regulators should agree upon when building a supervisory cooperation arrangement.

The Task Force co-chairs, Kathleen Casey, Chairman of the Technical Committee, and Jean-Pierre Jouyet, Chairman of the Autorité des marchés financiers of France, said:

“Supervisory cooperation involves the exchange of day-to-day oversight information outside of an enforcement context. Where financial firms or other market participants operate across borders, financial regulators can benefit from sharing information they have collected with their overseas counterparts, as this can assist each regulator in recognizing potentially troublesome trends, help identify common concerns and improve the abilities of regulators to assess the risk profile that a globally-active regulated entity may present.

“IOSCO has been at the fore in promoting better cooperation standards for securities enforcement, through its MMoU. Today’s report sets out the framework for better supervisory cooperation outside of enforcement matters, improving information sharing arrangements and conducting joint inspections, which is in keeping with G20 recommendations.

“We expect this to be useful for members in their drive to improve their oversight of entities which operate across borders, such as investment advisers, credit rating agencies, hedge funds, exchange operators and clearing houses.”

The Principles for Supervisory Cooperation

The IOSCO Principles for Supervisory Cooperation focus on three elements of successful supervisory cooperation:

1. General principles – which describe the usefulness of cooperation and the types of information and consultation that regulators should share and engage in;
2. Principles on the mechanisms for cooperation - which describe the functioning of memoranda of understanding, supervisory colleges and regulatory networks; and
3. Principles relating to the mechanics of cooperation, such as the basic principles of constructing a supervisory cooperation MOU.

The Report on Fostering Supervisory Cooperation among Securities Regulators

The Report analyzes the different types of regulated entities and the globalization of their operations, and offers suggestions on enhancing cross-border cooperation among regulators in order to improve the supervision of globally-active entities.

The Report, in particular, describes two instances where enhanced supervisory cooperation may be necessary:

• The first involves regulated entities that operate in one jurisdiction but also have affiliates in other jurisdictions. A regulator may need assistance from a foreign counterpart, because a domestic entity may be significantly impacted by the activities of its foreign affiliate; and
• The second involves regulated entities that provide services in multiple jurisdictions and thus are subject to regulation by multiple regulators. In this situation, cooperation is necessary to avoid conflicting regulation and to limit duplicate efforts by regulators.

The Report also describes different types of mechanisms that securities regulators may use to foster greater supervisory cooperation, including ad hoc discussions, MOUs, supervisory colleges and networks of regulators. In addition, the Report suggests that regulators expand the notion of supervisory cooperation to establish networks to consider and evaluate risks to domestic and global markets. Instead of focusing narrowly on entity-specific oversight, the Report suggests that regulators should explore opportunities to further collaborate on identifying, assessing and mitigating emerging risks and seek to address and evaluate them on a global basis.

Before supervisory cooperation can be effectively implemented, obstacles that hinder these efforts must be considered and if possible removed. The Report highlights several existing obstacles to cooperation that regulators should be aware of and, depending on the circumstances, may wish to address in order to make supervisory cooperation more effective.

These obstacles include legal and organizational impediments to sharing information. By identifying such impediments, regulators can design cooperative arrangements that avoid some of these hazards while seeking any necessary legal or regulatory changes to requirements that limit such cooperation.

Sample Annotated MOU

Accompanying the Report is an annotated Sample MOU. Task Force members believe a Sample MOU may assist IOSCO members when designing bilateral supervisory arrangements by demonstrating ways that the Principles (and particularly those principles relating to the mechanics, process, terms and conditions of cooperation) can be implemented in practice. The Sample MOU describes the issues and possible terms that may prove effective for supervisory cooperation arrangements, and illustrates some of the ways different jurisdictions might approach regulatory and legal issues that might arise when constructing such arrangements in practice. Fundamentally, the terms of any arrangement will have to be determined by the partners to such an arrangement and will necessarily reflect their own legal and regulatory circumstances and needs.

IoM : Amendments to the Anti-Money Laundering and Countering the Financing of Terrorism Handbook

Amendments to the Anti-Money Laundering and Countering the Financing of Terrorism Handbook ("AML/CFT Handbook") include the removal from Appendix G(a) (formerly Appendix G) of the reference to the FATF statement of 18 February 2010 entitled "Improving Global AML/CFT Compliance: On-Going Process" and countries referred to within that statement.

A new Appendix G(b) has been added entitled "Countries and territories covered by other statements from international bodies" drawing the statement issued by the FATF on 18 February 2010 entitled "Improving Global AML/CFT Compliance: On-Going Process" to the attention of licenceholders in order that it can be taken into account when conducting risk assessments and in respect of AML/CFT systems and controls. Business relationships and one-off transactions with persons or legal arrangements resident or located in jurisdictions listed in Appendix G(b) do not need to be treated automatically as higher risk.

Section 4.5.1 of the AML/CFT Handbook has also been amended to allow, on an exceptional basis where the certifier is unable to provide the full certification wording for identity documents, the flexibility to accept the wording "certified as a true copy of the original".

Full details of the changes made to the AML/CFT Handbook

Amended AML/CFT Handbook

OECD : Why sound institutions and smart regulation matter

Remarks by Angel Gurría, OECD Secretary-General, delivered at the Berlin conference on “Financial Market Regulation after Pittsburgh – Achievements and Challenges”

Berlin, 20 May 2010

Chancellor Merkel, Minister Schäuble, Commissioner, Excellencies, Ladies and Gentlemen:

The Swiss writer Max Frisch said:
“A crisis is a productive state; you simply have to get rid of its aftertaste of catastrophe.”

The strong and effective reactions of governments and central banks, the strengthened cooperation of advanced and emerging economies in the G20, the endorsement of Financial Market Reform at the G20 Leaders’ Summits and, more recently, the reaction of European Leaders in support of the Euro are all different and important pillars of this “productive state”.

But the crucial questions remain: Have we been “productive and effective” enough? Are the institutions sound? Do our rules and regulations provide the right incentives? And is our institutional architecture well-equipped to promote productivity and growth in the long term?

Global consistency is the key principle that should be respected in the reform process - we must further strengthen the links between macro management, fiscal consolidation, structural reforms, and prudential regulation and surveillance.


1. Credible exit strategies and sound fiscal consolidation are needed more than ever

Both stages of the crisis, the one which started in August 2007 and the current sovereign debt one are about too much leverage: in the private sector first and in the government sector now. The first leg of the crisis saw private debt insolvency being transferred onto the public balance sheet in various ways. With public solvency now being questioned by the market, the room to keep putting things onto the “pay later” bill has significantly diminished.

Securing fiscal sustainability is of the utmost urgency. Public Deficits are too large in many OECD countries and debt levels are exceeding 100% of GDP on average. For many countries there is a risk that unfavourable dynamics are sparked off as increasing debt levels raise risk premia, adding to the debt burden while holding growth back, with further adverse consequences on debt sustainability.

We welcome the strong reaction by the European Council in combination with the impressive fiscal consolidation and structural reform package in Greece, as well as the bold adjustment measures recently announced in Spain and Portugal. We will continue to work with those countries to support their reform efforts in areas such as taxation and tax compliance, labour market, innovation and public sector reform.

When restructuring is forced upon a country by a crisis, the costs and the pain are much worse than when reforms are addressed under controlled conditions and with medium-term recovery in mind. This is why countries should think, plan and communicate clear exit strategies now and to combine them with structural reforms to harness new sources of growth, like innovation and green growth.

In this context, international coordination and cooperation is a sine-qua-non in this agenda. This is why the G20 Framework for Strong, Sustainable and Balanced Growth is such an important policy approach to deal with the current crisis.

An additional risk to the global environment is the situation in Asia, where overheating due to large capital inflows is leading to rising inflationary pressures. There are two features about the institutional architecture that are important to keep in mind when thinking about the situation in Asia. First, exchange rate flexibility could alleviate some of the pressure on monetary policy in emerging economies, allowing more scope to address domestic inflation.

Second, the risk of this region backing away from open markets, for example with new capital controls or other measures that impede cross border flows needs to be avoided.


2. Sound institutions and smart financial regulation will be crucial

Improved macro management and structural reform has to be accompanied by consistent and reinforcing prudential rules for the financial system. There are four features of the financial crisis that are particularly important to address:

First, too-big-to-fail institutions took on too much risk driven by innovations and regulatory arbitrage with no effective constraints on leverage.

Second, capital rules proved to be pro-cyclical in the way they operated in practice.

Third, we saw insolvency resulting from contagion and counterparty risk driven mainly by the capital market activities of banks (as opposed to traditional credit market).

Finally, the lack of efficient resolution regimes fostered a culture of growing profits for short-term private gain, while socializing any losses that might arise. This issue, of course, is not independent of too big to fail considerations.

Regulatory reform is proceeding at several places and levels. In the United States, the proposal includes the possible separation of certain proprietary trading, hedge fund and private equity activities from “banking”. The Basel Banking Committee is revising the Basel II capital rules and proposing new liquidity ratio rules. Last year that Committee also proposed new trading book reforms. The Financial Stability Board (FSB) is seeking to insure an internationally coherent framework for financial reform. The European Union is drafting its own related directives. Finally, the European Central Bank also has sets of rules for its operations with banks, and these too have had to be adjusted in recent weeks.

So what sort of financial system are we creating? At this stage we simply do not know what costs might arise from overlaps and inconsistencies in this multi-level reform process; nor how they might interact in a future crisis. Nor do we fully understand how the grey lines between banks, insurance companies, reinsurers, investors, hedge funds and other shadow banking entities will be redrawn as a result of new incentives for arbitrage that might arise. All these financial firms operate in different jurisdictions with different regulators and supervisors responsible for them. Often supervisors at the national level are setting rules for banks and other financial institutions that operate in markets that go well beyond national borders, and which interact with other institutions outside of their jurisdiction.

The new quantitative impact study of the Basel Banking Committee will only take into account its own proposals, and cannot be expected to include all the other institutional changes and interactions going on at the same time.


3. The institutional architecture – how can we make it strong and sustainable for the future?

The institutional architecture for financial regulation is a concern for us at the OECD. The financial system, in essence, is a system of “promises”. Each promise should be treated in exactly the same way from a regulatory perspective. But the present structure does not necessarily foster this: It provides incentives for banks and other institutions to introduce innovations to allocate capital and risk so as to minimize capital requirements and to maximize short-term private gains, rather than acting in the most efficient way from the perspective of long-term growth. These efforts lead to shifts in the dividing line between banking and shadow banks that are very difficult to anticipate in advance.

It is for this reason that we at the OECD favour the simple understandable ex-ante rules. Among all those on offer, we place most emphasis on the following:

First: a leverage ratio on all bank assets. Why? Because the biggest problem is the shortage of capital. A leverage ratio can be set in a way that avoids the shifting of promises, and ensures that minimum requirements are met. Once accounting standards are brought into line, it will greatly facilitate international coordination. It will be important to meet the deadline to decide and announce what the new capital rules will be by the end of this year. This will remove an element of uncertainty which is currently holding back lending. Subsequently it will be important for countries to move together to achieve such rules over a reasonably short period to avoid creating new arbitrage opportunities.

Second, we favour the idea of a capital buffer over the minimum requirement, so that through restrained dividends, buybacks and bonuses in the good times capital can be built above the minimum and, subsequently, can be run down to the minimum in a crisis. This is consistent with counter-cyclical capital rules and other dynamic provisioning proposals that we fully support.

Third, we favour separation of certain investment banking activities from commercial banking to minimise contagion and counterparty losses within and between banks due to losses that arise from capital market activities in a crisis. The whole point of commercial banks having capital is that it should be there in a crisis to absorb losses, and to reduce the damaging economic effects of deleveraging. While separation will help to reduce the “too big to fail” problem it does not eliminate it. Capital market banks may still be too large and systemically important. They should be supervised, subject to capital rules where trading book requirements are appropriate to the risk they take, and they should be accompanied by resolution regimes including living wills.

Chancellor Merkel, Minister, Ladies and Gentleman: we have to work in the next months on a new institutional architecture for financial reform at both the macro and the micro level. We have to do much better in reducing the role of perceived national self interest in the financial reform process, and focus on improved coordination and consistency and to encourage banks to go back to their most important function which is to lend

We need such new architecture of financial reform to be combined with sustainable fiscal consolidation strategies, structural reforms and efforts to explore new sources of growth to build a stronger, cleaner and fairer world economy after the crisis. The three C’s: Cooperation, Coordination and Consistency are key to overcome the current and avoid another C – another crisis. Toronto in June and Seoul in November can be milestones in this respect – as can Berlin today!