Financial services providers in Mauritius have recently seen their licences suspended or revoked, or have had administrative penalties imposed, or have been subjected to some form of regulatory action in a rather unprecedented wave of regulatory enforcement by the Financial Services Commission (FSC).
The country itself has been linked with a number of cross-border financial scandals and the Government has been spurred into action by the adverse listings of the Financial Action Task Force (FATF-GAFI) and the European Commission, which pointed out certain strategic deficiencies in its anti-money laundering and counter terrorist financing framework[1].
Alive to these facts, the FSC has not only multiplied its enforcement action but also adopted a new conciliatory approach to regulatory action in a manner which it is hoped will promote dialogue with licensees and a more expedient resolution of regulatory breaches.
In this article, we analyse the sanctioning powers of the enforcement committee, the internal disciplinary independent committee of the FSC (Enforcement Committee[2]). We also explore the workings of the newly established settlement framework introduced by FSC in December 2020.
THE SANCTIONNING POWERS OF THE ENFORCEMENT COMMITTEE
The ability of the FSC to enforce compliance with financial laws and its own guidelines has been enshrined in legislation since the financial services legislative overhaul of 2007. This translated into routine inspections being carried out mostly on management companies, and investigations being launched upon reasonable cause arising out of the conduct of a licensee falling below expected norms.
In the same line of thinking and with a view to consolidating its function as enforcement regulator, the FSC issued an Enforcement Manual (on 11 June 2020) describing general policies and procedures to provide guidance to the licensees in respect of the FSC’s enforcement powers and processes.
Prior to enforcement action, the Financial Services Act[3] together with the Enforcement Manual provide that the FSC may at any time conduct an onsite inspection to check whether the targeted licensee is complying with the requirements of relevant laws and conditions of licence.
The FSC may also conduct an off-site monitoring supervision by asking licensees to submit reports or statutory returns to enable it to review and ascertain the licensee’s compliance status with the relevant laws.
Following the onsite inspection or off-site monitoring, and after considering all of the available information, the FSC’s officers may commence an investigation at the business premises of the targeted licensee to obtain information from any program, data, file or document of the targeted licensee (Target).
This investigation process is conducted where the FSC or its chief executive[4] has reasonable cause to believe that the Target has been, is or might be in breach of legal provisions, licensing conditions and/or directions issued by the FSC, and that these breaches might seriously impact on the soundness and stability of the financial system of Mauritius or the reputation the country, or may threaten the integrity of the system.
Enforcement action
If the FSC or its chief executive believes, on reasonable cause, that breaches have been committed by the Target and that enforcement actions are necessary, the matter will then be referred to the Enforcement Committee.
As the internal independent committee of the FSC, the aim of the Enforcement Committee is to exercise the disciplinary powers of the FSC through the imposition of an administrative sanction on the Target.
Section 7(1)(c) of the Financial Services Act sets out the range of potential sanctions at the disposal of the FSC, namely:
- giving private warnings;
- issuing public censure;
- disqualifying a Target from holding a licence;
- disqualifying an officer of the Target;
- imposing an administrative penalty;
- suspending the Target’s licence; and/or
- revoking the Target’s licence.
After considering the matter referred to it, the Enforcement Committee may issue a Warning Notice[5] to the Target informing it that (i) the Enforcement Committee is contemplating an administrative sanction, (ii) the type and terms of the administrative sanction, (iii) the right of the targeted licensee to make written representations to the Enforcement Committee. The Warning Notice must be accompanied by copies of all documentary evidence on which the Enforcement Committee has relied to impose the administrative sanction.
It is apposite to note that the Enforcement Committee does not hold a hearing. A Target is only able to offer a rebuttal of the Enforcement Committee’s averments through written representations prior to the Enforcement Committee issuing a Decision Notice (see further below).
As such, the opportunity to make written representations is a crucial procedural step that a Target must avail itself of and carefully consider as it will impact the outcome of the proceedings and also the possibility of further review. Where the Target and one or more of its officers are subject to enforcement proceedings, it may be warranted that they separately provide written representations as there may be diverging or even conflicting interests involved.
If the Enforcement Committee decides to impose an administrative sanction, a Decision Notice[6] will be issued setting out the grounds for doing so. More importantly, the Decision Notice will state the type and the terms of the administrative sanction. It will also inform the Target of its right to make an application to the Review Panel[7] for a review of the decision of the Enforcement Committee.
In terms of administrative penalties, according to the Financial Services (Administrative Penalties) Rules 2013, the Enforcement Committee has the discretion to determine the applicable quantum, provided the amount of the penalty is proportionate to the regulatory breaches committed by the Target. However, this discretion does not apply to certain specific breaches, such as the non-filing of statutory documents and statistical information.
As a matter of transparency, the Financial Services Act 2007 was amended in 2020 to provide that any Decision Notice of the Enforcement Committee may be published in such form and manner as the chief executive may determine. As a result, these decisions are now freely accessible on the FSC’s website.
RECENT DECISIONS RENDERED BY THE ENFORCEMENT COMMITTEE
The Enforcement Committee has issued several decisions and published them on the FSC’s website. These demonstrate the thought processes and the procedures by which the Enforcement Committee came to the decision of sanctioning a Target.
The PCL Management Services decision
One illustrative example is the decision dated 18 December 2020 that imposed an administrative penalty amounting to USD 4 950 on PCL Management Services Mauritius Ltd. This company, which was issued with a management licence by the FSC on 15 December 1994, has been found to be in breach of the Financial Intelligence and Anti-Money Laundering Act for having, among other things, failed to establish policies, controls and procedures to mitigate risks of money laundering and terrorism financing.
The Beaufort decision
In another Decision Notice, dated 30 December 2020[8], the Enforcement Committee sanctioned Beaufort Management Services Ltd (Beaufort), a management company, for various breaches of the provisions of the Financial Services Act 2007, the FIAMLA and the FSC Code[9].
Beaufort’s management licence was suspended by the FSC in March 2018 and an investigation was launched into the company’s business. The investigation revealed that Beaufort facilitated the setting up of six companies of an undercover agent posing as an associate of a Belizean confidential source while intentionally concealing the beneficial ownership of these companies.
Following a Warning Notice from the Enforcement Committee dated 11 November 2020, Beaufort was informed that a revocation of its management licence was contemplated. Beaufort did not submit any written representations to the Enforcement Committee in rebuttal, based on which the latter concluded that the averments of statutory beaches and unsound business conduct were undisputed by the management company. As a result, the Enforcement Committee took the decision to revoke Beaufort’s management licence.
The Beaufort decision has the added significance that the Enforcement Committee sanctioned Beaufort’s general manager on the basis that he had, among other things, knowingly abused his position to set up the six companies and applied for licences with the FSC while concealing their beneficial ownership, and also certified a fake passport.
In 2018, he was charged with conspiracy to commit securities fraud, money laundering conspiracy and conspiracy to defraud the United States of America[10]. He pleaded guilty to the charge of money laundering conspiracy before the United States District Court Eastern District of New York, and has been sentenced to imprisonment for 397 days, USD 100 mandatory special assessment and a USD 105 000 forfeiture money judgment[11]. The Enforcement Committee also decided to impose an administrative penalty amounting to
MUR 4 922 568 and disqualify him from holding the position as officer in any licensee of the FSC.
Insights
Undoubtedly, these recent decisions demonstrate a renewed dynamism of the FSC to police regulatory breaches before they escalate. A clear signal has been sent to the market that non-compliance is now a serious risk not only to licence holders but also to their approved officers.
While the administrative sanction process may need further refinement, and in recognition that an effective voluntary settlement framework is a necessary complement to the administrative powers of a financial regulator, the FSC published a Settlement Framework (on 11 December 2020) which will work in parallel with the sanctioning regime.
VOLUNTARY SETTLEMENTS: THE NEW WAY FORWARD
The Settlement Framework provides for a novel approach to address regulatory breaches and shorten the enforcement process. The objective is to use settlement discussions between a Target and the FSC as a more effective way to bring about remedial action, avoid the undesirable effects of formal administrative sanctions, and unclog the resources of the regulator.
In essence, once the FSC has determined that a Target has committed breaches and is contemplating imposing administrative sanctions, the Target can initiate the settlement process by making a request in writing to the chief executive indicating that it wishes to avail itself of the settlement process and proposing a remedial plan to address the concerns of the regulator.
The decision to engage in settlement discussions with any licensee lies solely within the discretion of the chief executive of the FSC which will consider the following factors[12] before acceding to the request for settlement discussions:
- the nature, seriousness and impact of the contravention;
- whether the contravention is ongoing;
- the role played by the Target in the conduct and/or suspected contravention;
- whether settlement will achieve an effective outcome for those (such as consumers or investors) who have been adversely affected by the conduct and/or suspected contravention;
- whether the Target will comply with the terms of the settlement agreement;
- the disciplinary record and compliance history of the licensee;
- the prospects of a swift and appropriate resolution of the matter; and
- whether the proposed terms of settlement deliver credible deterrence.
Settlement discussions are possible at any stage of the enforcement process[13] provided that a Decision Notice[14] has not been issued to the licensee. Any ongoing investigation or inquiry will therefore continue in parallel unless the parties agree to settle.
The settlement agreement
Typically, under Mauritian Laws, it is possible to stop and bring an end to a dispute by entering into a transaction as provided under the Mauritian Code civil which takes the form of a settlement agreement.
For a settlement agreement to be effective, certain conditions need to be met. It is apposite to note that article 2044 et seq of the Mauritian Civil Code prescribes three conditions to be present for a transaction to exist, namely: a dispute, the intention of the parties to settle the dispute irrevocably, and reciprocal conditions of the parties, so that each party is significantly renouncing at least part of his or her rights.
Furthermore, the Settlement Framework provides for additional requirements[15] such as:
- the relevant facts pertaining to the case;
- the wrongdoing and/or non-compliance admitted by the Target;
- the acceptance of responsibility for the wrongdoing and/or non-compliance;
- the nature, quantum and/or duration of any agreed sanction and/or remedial steps which the Target has agreed to take;
- that the Target has read and understood the settlement agreement and by signing this agreement, the Target agrees to be bound by the terms;
- that the Target has signed the Agreement voluntarily and without duress or coercion;
- that the Target waives his or her right to appeal and contest any term of the settlement agreement; and
- that the Target certifies as to the completeness and accuracy of information that was provided to the FSC, and that the Target acknowledges that the FSC has relied upon the completeness of the information provided by the Target.
If a settlement agreement is reached between the Target and the FSC, and depending on the terms of this agreement, the amount of the administrative penalty or the period of the restriction over the Target may be reduced.
The attitude of the Target during the settlement discussions is therefore key to successfully reach a settlement agreement. Otherwise, if these settlement discussions fail, the chief executive may consider that settlement is not reachable, and the matter will then be the subject of a Decision Notice.
CONCLUSIONS
It is clear that the Regulator has, within a very short time frame, considerably raised the bar when it comes to enforcement, at times causing some upset among the players in the financial services industry.
However, commentators agree that bold steps were needed and well overdue to demonstrate full compliance with international norms that Mauritius has committed to implement and address the concerns that the FATF and European Commission have raised in having the country put on the watchlist.
From this perspective, the Settlement Framework is a welcome development which demonstrates the willingness of the Regulator to wield its administrative powers in a constructive manner and more consonant with building a clean and compliant financial industry.
[1] FATF – Jurisdictions under Increased Monitoring – 23rd October 2020.
[2] The Enforcement Committee as established under section 52 of the FSA.
[3] Section 43 of the Financial Services Act 2007.
[4] The Chief Executive of the Financial Services Commission as appointed under Section 9 of the Financial Services Act 2007.
[5] Notice as provided under the Section 53(2) of the Financial Services Act.
[6] Notice as provided under Section 53 (3) of the Financial Services Act.
[7] The Review Panel as set up under section 54 of the Financial Services Act.
[8] Revocation of Management Licence – Beaufort Management Services Ltd – Ref: ENF/30L2020/E1
[9] The FSC has on 6 November 2020, by way of a circular letter referenced as CL061120 repealed the March 2012 Code on the Prevention of Money Laundering & Terrorist Financing.
[10] Department of Justice – Eastern District of New York – Indictment 28 February 2018.
[11] Paragraph 3 – Disqualification and imposition of administrative penalty – Mr Arvisingh Canaye.
[12] Clause 5.1 of the Settlement Framework.
[13] The enforcement process encompasses the information gathering and review, investigation, inquiry, and show cause stages for the purposes of enforcement action.
[14] The decision from the Enforcement Committee deciding to impose an administrative sanction as provided under Section 53(3) of the Financial Services Act.
[15] Clause 6.2 of the Settlement Framework provides the list of the required content of a settlement agreement.
