A Digital Asset is considered 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. A Digital Asset, in this respect, includes a digital representation of value which:
Is used as a medium of exchange, unit of account, or store of value which is not a legal tender, even if it is denominated in legal tender
Represents assets such as debt or equity in the promoter
Provides access to a blockchain-based application, service or product
A digital asset will however exclude the following;
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.
A digital representation of value issued for use within an online gaming platform.
The regulation for non-banking financial services considers Crypto-currencies as a sub-category of digital assets. Please find a link to the guidance note here.
The Digital Assets Custodian
Custodians are key to ensure the protection and preserving the wealth of both individuals and corporates. In several instances, the services of a qualified custodian is compulsory in order to satisfy requirements for transparency and good governance, provide proper asset segregation, and safeguard investors’ confidence. However, contrary to the custody of many traditional assets where the asset itself or its proxy is held by the custodian, digital assets exist solely in digital form while functioning as bearer instruments, and are only as secure as the private keys controlling them. To address the specific challenges in relation to the custody of digital assets, a regulatory framework has been introduced in Mauritius to provide guidance to persons carrying out custodian services for digital assets, and to clarify the standards of care to be expected in the custody of those assets.
In Mauritius, regulation 21 of the Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008 requires every Collective Investment Scheme (CIS) to have a custodian, with a person issued with a custodian licence under S 100 of the Securities Act 2005 authorised to hold the assets of a CIS. A Custodian services (Non-CIS) licence, issued in accordance with S 14 of the Financial Services Act 2007, allows the licence holder to provide custody services to clients other than CIS.
In 2018 the Mauritius Financial Services Commission (FSC) recognised digital assets as an asset class for investment by sophisticated and expert Investors. However, it was felt that the regulatory framework relating primarily to the custody of securities and physical assets was inappropriate for the safekeeping of digital assets. In 2019 a licensing framework specifically for digital asset custodian services was introduced by the FSC.
The holder of the Digital Asset licence, while being a licensee of the FSC, is simultaneously considered to be a financial institution under the Mauritius Financial Intelligence and Anti-Money Laundering Act 2002. It is has the obligation to comply with all laws and regulations in force relating to Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT), as well as with the FSC Code on the Prevention of Money Laundering and Terrorist Financing.
Custody of Digital Assets
FSC will regulate digital custody, and will be issuing a Custody Services (digital asset) under 14 of the Financial services act. The Holder of this license will be allowed to hold digital assets of CIS and Non-CIS.
Digital Assets Marketplace
Fintech activities have been growing exponentially in complexity. Lack of appropriate custody services for the safekeeping of digital assets has remained a growth limiting factor.
Therefore, the FSC is currently (as of Dec 2018) creating the regulatory framework for Digital Asset Marketplaces. The new “Digital Asset Marketplace licence” will regulate a new line of business relating to facilitating the buying, selling or exchanging of digital assets for fiat currencies or other forms of digital assets and vice versa, for a fee (commission).
This will further increase the competitive edge of the Mauritius IFC. In many European countries it is very difficult to make such exchanges, or even impossible (i.e. in France).
Core income generating activities in Mauritius
The custodian is required to maintain at all times an office in Mauritius from which it would perform its core business activities, and have a suitable number of staff with the appropriate proficiency, competence and experience to properly perform those core functions. Staff involved in core functions are to meet fitness and propriety tests in accordance with best industry standards, and none of the core functions can be delegated or outsourced without prior approval from the FSC.
The Digital Asset Ecosystem
Secure and effective custodianship significantly reduces the risks of investing in digital assets and is an important part of a healthy digital asset ecosystem. While Fintech activities have been developing exponentially, one major growth limiting factor to the entrance of institutional investment into the digital asset marketplace has been the lack of appropriate custody services for the safekeeping of digital assets. The FSC rules, by imposing compulsory licensing requirement for custodians of digital assets, and by encouraging best industry practices and standards in the delivery of those services, seek to enhance trust and confidence in the Mauritius jurisdiction, while laying the foundation for the sustainable development of digital asset custodian services in Mauritius.
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