The Mauritius Financial Services Commission (FSC) has issued yet another guidance note or a regulatory framework of security token offering (STO) functions, dated April 8.
In the document, the FSC declared that they remain highly supportive of fintech related initiatives unlike the rest of Africa. The Securities Act of 2005 defines security tokens as digitally represented securities. As a consequence, when STOs are conducted in or from Mauritius, the offering is regulated by local security regulations, including the requirement for a prospectus. The regulator also notes that, while no STO can take place without its prior approval, there are exceptions for when a token issuer needs legal authorization. Those exceptions include offerings meant for sophisticated investors, expert investors, expert funds, professional collective investment schemes and specialized collective investment schemes The only difference between the old and new securities is that the latter is in digital format.
Projects who want to qualify for and maintain an FSC license to issue an STO in Mauritius would have to:
- A) Conduct due diligence regarding the managing team, the viability of the project and the underlying assets used to back the issued tokens.
- B) Disclose any potential risks to investors in a clear and transparent manner before selling the tokens
- C) Abide by other rules defined in the Securities Act 2005.
For investors, the regulators provided a reminder that investing in STOs present a considerable risk, and thus interested individuals must ascertain the risk levels before putting in their money. Additionally, the regulators stressed that there is no compensation arrangement to be provided if an investor loses money to an STO project
The FSC also highlights that carrying out financial services without a license is a criminal offence and warns investors of the high-risk nature of STOs. The document states that investments in STOs are not protected by any statutory compensation arrangement in the country.
The document follows a first guidance note from the regulator, issued in September 2018, on cryptocurrency as an asset class.
Meanwhile, by releasing the new STO regulation, Mauritius joins the Philippines and Hong Kong as the other regions to do so since the turn of the year.