The Virtual Asset and Initial Token Offering Services Act (VAITOS) 2021 was brought into force on the 7 February 2022. It provides for a regulatory framework for new and developing activities regarding Virtual Assets (VAs) and Initial Token Offerings (ITOs) in Mauritius, as well as to safeguard against money laundering and financing of terrorism associated with VAs.
Under the VAITOS Act, a VA is a digital representation of value that may be digitally traded or transferred, and may be used for payment or investment purposes, but does not include a digital representation of fiat currencies, securities and other financial assets that fall under the purview of the Securities Act.
As an international financial centre and growing FinTech hub, Mauritius is amongst the first countries in the Eastern and Southern African region to adopt comprehensive legislation on VAs and ITOs. The VAITOS Act provides a clear and comprehensive basis for operators as FinTech develops in Mauritius, whilst aligning the legal framework for regulating such class of assets with international standards.
The VAITOS Act empowers the Mauritius Financial Services Commission (FSC) to regulate and supervise Virtual Asset Service Providers (VASPs) and issuers of ITOs within the non-bank financial services sector in Mauritius.
Mauritius is committed to meeting international standards in respect of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) measures. The VAITOS Act has been enacted to regulate VAs according to Recommendation 15 of the Financial Action Task Force, which requires that VASPs and issuers of ITOs are regulated with respect to AML/CFT obligations.
Regulating services involving VAs help to ensure that only legitimate business takes place in the country, which in turn protects the users of these services. The FSC intends to publish guidelines which will, inter alia, ensure that prospective investors are aware of risk associated with VAs in a transparent manner.
The VAITOS Act addresses several fundamental aspects, such as technical requirements, governance structures, risk management, disclosure of information for VASPs and the protection of the rights of clients of VAs and Virtual Tokens (VTs). The Act will further provide for timely, accurate and transparent disclosure by issuers of ITOs.
The VAITOS Act regulates two main categories of activities:
- VASP, meaning a person who conducts, as a business activity, for or on behalf of another person one or more of the following activities or operations, namely:
- Exchange between VAs and fiat currencies.
- Exchange between one or more forms of VAs.
- Transfer of VAs.
- Safekeeping of VAs or instruments enabling control over VAs.
- Administration of VAs or instruments enabling control over VAs; or
- Participation in, and provision of, financial services related to an issuer’s offer and sale of a VA, or an issuer’s offer or sale of a VA.
- Issuers of ITOs are companies registered under the Act and making issuance of ITOs. An ITO is an offer for sale to the public of a VT in exchange for fiat currency or another VA.
The VASP regime provides for several sub-categories of licences as follows:
- The Class M (Virtual Asset Broker-Dealer) licence covers those carrying out activities such as exchange between VAs and fiat currencies; or exchange between one or more forms of VAs.
- The Class O (Virtual Asset Wallet Services) licence covers the transfer of VAs.
- The Class R (Virtual Asset Custodian) licence covers those responsible for the safekeeping of VAs or instruments enabling control over VAs; administration of VAs or instruments enabling control over VAs.
- The Class I (Virtual Asset Advisory Services) licence is required for the participation in, and provision of financial services related to an issuer’s offer and/or sale of VAs.
- The Class S (Virtual Asset Market Place) covers virtual asset exchanges, whether a centralised or decentralised virtual platform and whether in Mauritius or in another jurisdiction, which facilitate the exchange of VAs for fiat currency or other VAs on behalf of third parties for a fee, a commission, a spread or other benefit and which:
- Holds custody, or controls VAs, on behalf of its clients to facilitate an exchange; or
- Purchases VAs from a seller when transactions or bids and offers are matched to sell them to a buyer.
The definition of Virtual Asset Exchange also includes the owner or operator of a virtual platform but excludes a platform that only provides a forum where sellers and buyers may post bids and offers and a forum where the parties trade in a separate platform or in a peer-to-peer manner.
The VAITOS Act does not apply to ‘closed-loop items’, which are non-transferable, non-exchangeable and cannot be used for payment or investment purposes, and which a person cannot sell onward on a secondary market outside of the closed-loop system.
It also does not apply to digital currencies issued by the Bank of Mauritius, the central bank of the Republic of Mauritius, or by the central bank of a foreign jurisdiction, and to digital representations of fiat currencies, securities and other financial assets.
Banks or holders of licences issued under the National Payment Systems (NPS) Act can apply for a licence under the VAITOS Act, but only with the prior written approval of the Bank of Mauritius, and M, O or S Class licences can only be issued to the subsidiary of the bank or the NPS licensee rather than to the bank or the NPS licensee itself.
An application to the FSC for a VASP licence must specify the relevant class or sub-category of licence sought, and the applicant must:
- Be a duly registered company carrying on business activities in or from Mauritius.
- Be directed and managed from Mauritius.
- Have a physical office in Mauritius.
- Ensure that each of its controllers, beneficial owners, associates and officers satisfies the ‘fit and proper’ criteria of the FSC.
In determining whether the applicant is directed and managed from Mauritius, the FSC may consider, amongst other factors, where:
- The strategy, risk management and operational decision making takes place.
- The executives responsible for decision making or the management team meets to effect policy decisions.
- Board meetings take place.
- The officers, employees or directors are resident.
It should be noted that the approval of the FSC is required for issues of shares, the appointment of controllers, beneficial owners and officers of a licence, modifying the scope of the VASP’s activities, reorganisation of a VASP’s legal structure, mergers, any change of name or a change of external auditor.
In addition, adequate systems and controls must be implemented at all times to prevent market abuse and, when keeping VAs in their custody, VASPs must ensure that a sufficient amount of each type of VAs is maintained to meet its obligations towards clients.
VASPs also have the financial obligation to maintain a minimum stated unimpaired capital (depending on the class or subcategory of licence), to segregate its accounts from those of its clients, to maintain proper records (including information on the originators and beneficiaries involved in any transfer of VAs), and to file annual audited financial statements to the FSC.
An issuer of ITOs means a company making an offer for sale to the public of a VT (any cryptographically-secured digital representation of a set of rights, including smart contracts, provided on a digital platform, and issued or to be issued by an issuer of initial token offerings) in exchange for fiat currency or another VA.
An Issuer of ITOs must be registered with the FSC if they carry on business in or from Mauritius and an application for registration can be made through a virtual exchange in Mauritius (or an equivalent accepted by the FSC) at least 45 days before the start of the offer period and will be processed within 30 days.
A key obligation for issuers of ITOs is to establish and maintain a White Paper signed by every member of the governing body of the issuer, which provides full and accurate disclosure of a list of prescribed information (including the class(es) of VT available for subscription) allowing potential purchasers to make an informed decision.
This White Paper must be published on the issuer’s website so that it is readily accessible by potential purchasers for the duration of the offer period of VTs, which must not exceed six months, and at least 15 days after the offer period ends.
Like VASPs, issuers of ITOs are required to carry out their business activities with honesty and with due diligence and are required to maintain the confidentiality of their clients in accordance with the data protection law. Issuers of ITOs must also establish and maintain sound and adequate measures for AML/CFT purposes.
The Act provides that existing unlicensed VASPs and issuers of ITOs must make an application for a licence or registration within a transitional period of three or 18 months after the commencement of the Act.
The FSC will maintain a register of all VASPs and issuers of ITOs and monitor their business activities. It will also issue guidelines to ensure compliance, carry out onsite inspections and exchange information with other supervisory bodies and law enforcement agencies. The Act provides for the application of fines up to a maximum of MUR5 million and imprisonment terms of up to a maximum of 10 years.
Applicants for a licence or registration as a VASP or issuer of ITOs under the VAITOS Act can apply for Global Business Licence (GBL).