Mauritius FSC Implements Licensing Framework for Digital Asset Custodian Services in March 2019

In line with its statutory objective of studying new avenues for development in the financial services sector, responding to new challenges and taking full advantage of new opportunities for achieving economic sustainability and job creation, the Mauritius Financial Services Commission (the FSC) has issued the Financial Services (Custodian Services (Digital Asset)) Rules 2019 (the Rules) applicable to any person who wishes to carry out custodian services for digital assets. The Rules enable a holder of a Custodian Services (Digital Asset) Licence (the Licence) to provide services of safe-keeping of Digital Assets. In its Guidance Note ‘Recognition of Digital Assets as an asset-class for investment by Sophisticated and Expert Investor’ issued on 17 September 2018, the FSC recognised digital assets as an asset-class for investment by sophisticated and expert investors, and it has now set out the regulatory framework for the custodian of digital assets. This article attempts to provide a summary of the key principles applicable to a custodian of digital assets.

A ‘Digital Asset’ is defined in the Rules as any token, in electronic or binary form, which is representative of either the holder’s access rights to a service or ownership of an asset, and includes a digital representation of value which: (i) is used as a medium of exchange, unit of account, or store of value but which is not legal tender, even if it is denominated in legal tender; (ii) represents assets such as debt or equity; or (iii) provides access to a blockchain-based application, service or product. However, the following is excluded from the definition of ‘Digital Asset’: (i) any transaction in which a business, as part of an affinity or reward programme, grants value which cannot be exchanged for legal tender, bank credit or any Digital Asset; or (ii) a digital representation of value issued for use within an online gaming platform.

Any person wishing to carry out custody services for digital assets in Mauritius must now apply for a Licence from the FSC. The objects of the applicant must be limited to the safe-keeping of digital asset and operations arising directly from it. The FSC, if satisfied that an application meets the requirements of the Financial Services Act 2007 and the Rules, may issue a letter of intent to the applicant who is then required to demonstrate that it has in place the required resources, infrastructure and staffing to commence business within 6 months from the date of the letter of intent. Where the FSC is satisfied with the arrangements of the applicant, it may then grant the Licence. A custodian of digital assets has the obligation to commence business within 6 months from the date of issue the Licence.

Under the Licence, a custodian of digital assets is required to show that it is adequately staffed with persons having the appropriate competence and experience to properly perform the core functions of a custodian of digital assets. The registered office and place of business of a custodian of digital assets should at all times be maintained in Mauritius. A custodian of digital assets should always have a representative having sufficient knowledge in the operations of the custodian of digital assets, in Mauritius. The minimum capital requirement for a custodian of digital assets is the higher of: (a) 35 million Mauritian Rupees or an equivalent amount in foreign currency; or (b) an amount representing 6 months’ operating expenses as reported in the audited financial statements submitted to the FSC. Furthermore, the Rules provides that a custodian of digital assets must have a redundancy system in place to ensure continuity of its operations in the event of any unavailability of equipment, software or primary staff, appropriate disaster recovery facilities, a risk management framework and appropriate infrastructure to ensure continuous operations. A copy of the Rules may be downloaded here.

Finally, it is important to note that being a licensee of the FSC, the custodian of digital assets is considered as a financial institution for the purposes of the Financial Intelligence and Anti-Money Laundering Act 2002 and the Financial Intelligence and Anti-Money Laundering Regulations 2018 and therefore has an obligation to comply with all applicable laws, regulations and codes relating to anti-money laundering and counter-terrorism financing in Mauritius including the FSC Code on the Prevention of Money Laundering and Terrorist Financing.

By Nafiisah Jeehoo and Pinki Mahata – BLC Robert & Associates


 *This article should not be construed as legal advice and is made for information purposes only.