Guide to Banking - International Law Office

Introduction
Central Bank
Banking Licence Applications
Management and Operations
Fees

Introduction

Mauritius has historically adopted a conservative attitude to banking development. Until the end of 2004 banking was split into two separate banking regimes - offshore and onshore - with only about 10 offshore banking units admitted in Mauritius. The application process was rigorous and required applicants to submit audited financial statements for the previous five years.

In September 2004 the Mauritius National Assembly passed the Bank of Mauritius Act 2004 and the Banking Act 2004, designed to give the Central Bank more autonomy and to remove differences between the offshore and onshore banking regimes.

Under the new laws the Central Bank, responsible for licensing, regulation and general supervision of the banking sector, offers only one type of licence as opposed to the two (ie, offshore and onshore) previously available.

However, the difference between offshore and onshore banking remains, with the act providing for the division of responsibility for the financial sector between the Central Bank and the Financial Services Commission.

The laws also repealed the Foreign Exchange Dealers Act, with such dealers now falling under the Central Bank’s control.

The act requires 40% of a bank’s directors to be independent. The definition of an ‘independent director’ is one:

“having no relationship with or interest (whether past and present) in the financial institution or its affiliates which could reasonably be perceived to materially affect the exercise of his or her judgement in the best interest of the financial institution.”

The minimum capital requirement for a bank has now been increased from MRs100 million to MRs200 million.

The new law also empowers the Central Bank to appoint a conservator to protect depositors’ assets if the financial institution has, or its directors have: (i) engaged in practices detrimental to the interests of its depositors; or (ii) knowingly and negligently permitted its chief executive officer or any of its managers, officers or employees to violate any provision of the banking laws, any enactment relating to anti-money laundering or the prevention of terrorism, or guidelines and instructions issued by the Central Bank.

The Central Bank can also establish a deposit insurance scheme to protect “against the loss of part or all of the deposits in a bank, which will contribute to the stability of the financial system in Mauritius and minimize the exposure to loss”.

Other provisions include a strengthening of ‘know your customer’ rules, providing that:

“a financial institution shall open accounts for deposits of money and securities and rent out safe deposit boxes only where it is satisfied that it has established the true identity of the person in whose name the funds or securities are to be credited or deposited.”

Banks must also rotate their auditors at least once every five years.

The two largest domestic banks are the Mauritius Commercial Bank and the State Bank of Mauritius, which is minority state owned. The government also wholly owns both the Development Bank of Mauritius Ltd and Mauritius Post and Cooperative Bank Ltd, and owns a majority of First City Bank. The two largest foreign banks account for 22% of the market. Banks are free to conduct business in all currencies.

Central Bank

The Central Bank of the Republic of Mauritius was established in September 1967 and was modelled on the Bank of England.

The establishment of the Central Bank marked a new phase in the monetary history of Mauritius, moving forward from the stage of the sterling exchange standard, under which currency was issued in exchange for sterling at a fixed rate, to that of a ‘managed currency’, in which the discretionary role of the monetary authority became important.

The Central Bank’s object is “to safeguard the internal and external value of the currency of Mauritius” and “to direct its policy towards achieving monetary conditions conducive to strengthening the economic activity and prosperity of Mauritius”. The Central Bank is responsible for the licensing, regulation and general supervision of the banking sector and for issuing the Mauritian rupee.

Banking Licence Applications

The Banking Act provides that no person may engage in banking business or Islamic banking business without a banking licence issued by the Central Bank.

The act defines ‘banking business’ as:

• the business of accepting sums of money in the form of deposits or other funds, whether such deposits or funds involve the issue of securities or other obligations howsoever described, withdrawable or repayable on demand, after a fixed period or after notice;
• the use of such deposits or funds, either in whole or in part, for loans, advances, credit or investments, on a person's own account and at his or her own risk; and
• such services as are incidental and necessary to banking.

Application
Any body corporate may apply to the Central Bank for a banking licence. The act defines a ‘body corporate’ as an incorporated body, wherever it is incorporated. However, any body incorporated outside of Mauritius must register with the registrar of companies before an application can be made.

The application for a banking licence must be made in the form and manner determined by the Central Bank. Each application must be accompanied by the following documents regarding the applicant:

• a duly authenticated copy of the certificate of incorporation or registration;
• in the case of a foreign company registered in Mauritius, a written confirmation from the banking supervisory authority in the applicant’s country of incorporation that the supervisory authority has no objection to the applicant’s proposal to carry on banking business in Mauritius;
• a duly authenticated copy of the Constitution;
• details of the directors, beneficial owners, chief executive officer and managers of the applicant and a list of its shareholders owning 10% or more of its shares;
• the most recent financial statements, dated from not more than 60 days preceding the date of application;
• a detailed business plan which includes the nature of the planned business, organizational structure, internal control and projected financial statements for the next three financial years;
• in respect of those persons listed above, certified photographic identification and a certificate of good conduct from a competent authority or an affidavit duly sworn stating:
  • criminal convictions;
  • past or present involvement in a managerial capacity in a body corporate subject to insolvency proceedings; or
  • any declaration of personal bankruptcy;
• payment of the application fee; and
• any other information or document that the Central Bank may specify from time to time.

If the application is incomplete the Central Bank will notify the applicant of any outstanding documentation within 30 days of receipt of the application. It may also request supplementary information if it deems such information necessary to determine the application.

Determination
Once a completed application is received the Central Bank has a period of 60 working days for determination and seven days from determination to provide the applicant with written notice.

The act provides the conditions that must be satisfied in order for the Central Bank to grant a banking licence. The applicant must demonstrate:

• that the directors or senior officers have sufficient knowledge and experience in banking or finance and are fit and proper persons to carry on the proposed banking business;
• that the applicant has an adequate capital structure and access to sufficient financial resources to support the proposed bank;
• a sound and feasible business plan; and
• the ability and willingness to comply with any other conditions that the bank may impose.

Other factors that the Central Bank must account for are:

• the history and character of the business and management of the applicant;
• the needs of the market at the time of application; and
• the fitness and suitability of the applicant’s significant shareholders.

If a bank established in another jurisdiction applies for a banking licence to operate a branch in Mauritius, the foreign bank must demonstrate that it is a well-established bank of good reputation in its home jurisdiction and internationally, and that it will be under continued and consolidated supervision by a competent foreign regulatory authority.

Conditions
If an application is successful a licence will be granted pursuant to the act, specifying the name of the licensee, the place or places at which it may conduct business and any specific conditions that the Central Bank may impose.

The act specifies that each bank must carry on banking business only from the place of business specified in the licence, unless prior approval has been obtained. Prior approval must also be obtained for any change in the bank’s location. Each licence specifies the business which the licensee may conduct and approval must be obtained before conducting any other business.

The act also empowers the Central Bank to amend or vary a banking licence and to vary any conditions. This power extends to the imposing of further conditions. When the Central Bank proposes amendments or variations, it must notify the licensee in writing, which will have seven days to submit any written representations to the bank. After consideration of any representations, a final decision will be delivered in writing within seven days.

Revocation
Once a licence has been issued the licensee has 12 months to commence business or it may be revoked. The act provides various circumstances in which the Central Bank can revoke a banking licence, including but not limited to:

• failure to comply with directions;
• failure to meet solvency requirements; and
• entering into any winding-up proceedings.

In each case the licensee may make representations to the Central Bank before a final decision is made.

In keeping with Mauritius’s commitment to strict anti-money laundering regulations, any licensee convicted of an offence related to money laundering or the financing of terrorism or other illegal activities, whether in Mauritius or in another jurisdiction, may have its licence revoked. A licence may also be revoked in Mauritius if an affiliate or subsidiary of the licensee has been convicted of such an offence, whether in Mauritius or elsewhere.

In the case of international banks with branches registered and licensed in Mauritius, if they no longer possess a valid banking licence in the jurisdiction of the head office the Central Bank may revoke the banking licence for the Mauritius branch.

Management and Operations

Management of financial institutions
The act sets out the minimum conditions for the management of each financial institution registered in Mauritius. Each financial institution must have a board of directors consisting of at least seven natural persons, which must comprise no less than 40% independent directors. The Central Bank is empowered to mandate a higher number of directors for an individual financial institution if it believes the scope of the institution’s activities require it. If the financial institution is a branch of an international bank, the Central Bank may mandate that 40% of the directors be non-executive directors, rather than independent. In each case the directors must be fit and proper according to the guidelines issued by the Central Bank. The act also places a fiduciary duty on each director to act in good faith and in the best interests of the financial institution.

Control
Any significant change in the shareholding of a financial institution requires the Central Bank’s permission. This includes permission before any sale of shares or the pledge of shares which may directly or indirectly result in another person having a significant interest in a financial institution. Notice of any proposed sale or pledge of a financial institution’s shares must be given to the Central Bank 30 days prior to the proposed transfer or pledge. The notice must give full details of the party that will acquire the significant interest, including its assets and liabilities, the terms and conditions of the acquisition and the source of funds of the proposed purchaser. The Central Bank may refuse a proposed acquisition for various reasons, including (i) if it thinks that the acquisition may lessen competition or if the experience, or (ii) competence of the proposed purchaser indicates that it would not be in the institution’s best interest to allow such person to acquire such an interest.

Operations
The act sets out the minimum capital requirements for financial institutions. The minimum paid-up capital for banking licence holders is MRs200 million (approximately $6.67 million). Furthermore, financial institutions must maintain capital of at least 10% (or higher if so prescribed by the Central Bank) of their risk assets, based on the computation methods set by the Central Bank.

Each financial institution must maintain a reserve account with an amount equal to its stated capital, or assigned capital in the case of a branch of an international bank. In order to reach this amount, 15% of the net profit must be transferred into the reserve account each year. If a loss is made it will be offset against subsequent years’ profits. No dividends may be declared until the balance of the reserve account is at the prescribed amount without prior approval.

The Central Bank will also set guidelines or give direction on the minimum amount of liquid assets and may require additional liquidity based on the risk and nature of each individual financial institution’s operations.

In order for a financial institution to declare a dividend or make any other transfer out of profits, it must satisfy the Central Bank that it will not fail to meet the capital or liquidity requirements.

Supervision
Within three months of the end of its financial year, each financial institution must present its audited financial statements to the Central Bank. If it deems this necessary, the Central Bank may require a financial institution to prepare audited financial statements for its distinct lines of business. Furthermore, each financial institution must display authenticated copies of its financial statements in each of its places of business in Mauritius and must also deliver monthly statements of the assets and liabilities of all of its Mauritius branches.

Each financial institution must at all times have an approved, independent auditor appointed. The act specifies that no single partner in an audit firm shall be responsible for the audit of any financial institution for a continuous period of over five years. The Central Bank will appoint an auditor for any financial institution which fails to do so. The appointed auditor may be required to conduct any extended audit or further examination as instructed by the Central Bank. The act imposes a duty on the appointed auditors to report irregularities, such as a breach of banking laws, failure to follow a Central Bank guideline or evidence of money laundering.

Each financial institution must form an audit committee consisting of at least three independent directors, or as many non-executive directors as the Central Bank directs.

In order to terminate the services of an auditor, financial institutions must adhere to the provisions of the Companies Act 2001 and must also seek prior approval from the Central Bank, giving the reasons for termination. Auditors wishing to resign before the end of their term must notify the Central Bank at least 30 days before the date of resignation, stating their reasons.

The Central Bank must conduct examinations into the affairs of each financial institution at least once a year to the extent that it deems necessary. Examiners must be given access to all information that they may reasonably require concerning the financial institution’s business or the business of its branches and affiliates within or outside Mauritius.

The act provides for the operation of electronic banking for financial institutions.

Fees

The banking licence application fee, the processing fee and the annual licence fee are stated in Part I of the Schedule of the Banking (Procession and Licensing Fees) Regulations 2007. There is a fixed application fee of MRs600,000 and a processing fee of MRs90.

For further information on this topic please contact Paul Stewart at Appleby by telephone (+1 441 295 2244) or by fax (+1 441 292 8666) or by email (PStewart@applebyglobal.com).