The role and regulation of Mauritius financial institutions
Mauritius is the largest island in the world. It is one of Africa’s economy that is stable, competitive and success. The state of the economy has enabled the country to be both vibrant and thriving in sectors such as the export sector, offshore financial sector, and manufacturing. The success has allowed the country to attain a Gross Domestic Product of $11.9b. Also, its convenient position has enabled it to be an established international financial center with easy access to Asia, Europe Middle East and South Africa enabling active investment. The report aims to understand the roles and regulation of both banking and non-banking financial institutions in the Mauritius critically (Alexander, Dhumale, & Eatwell, 2006, 35).
The roles and regulations of Mauritius’ banking and non-banking financial institutions
The roles and regulations of Mauritius financial institutions follow the Banking Act of 2004 that allows conducting of banking activities under a single regime. Mauritius banking sector currently has 21 banks actively involved in business and several non-bank financial institutions (Felsenfeld, C. 2007, 221). The role of the banking sector is to provide services such as leasing, stock brokerage, insurance, private banking business, custodial management, asset management and fund management. It also provides services such as phone banking, internet banking, and home banking. The banks diversify into non-banking businesses through affiliates which provide the same services such as deposit-taking and foreign exchange (Gup, 2000, 98).
The supervision of regulations of the banks and the non-bank financial institution is by the country’s central bank, Bank of Mauritius. It issues guidelines to the financial institution that comprise of established prudential safety and soundless standards and regulations. The regulations in that govern the financial institution are such as:
Bank of Mauritius Act 1996: The Act states that the country’s central bank, Bank of Mauritius, has all the power to organize and facilitate the clearing of cheques and other credit instruments. The act also enables it to be a bank to other banks by opening accounts for them and accepting deposits.
Banking Act 1988: The law is about providing soundless and safety of the banking system. It also incorporates legislation that aims to strengthen the regulatory framework of non-bank financial institutions.
Bill of exchange Act 1914: It involves requirements that must be strictly adhered to when truncating large values of cheques. It also has guidelines as to how payments presentation should be.
Companies Act 1984: The Act states that banks have to be bodies incorporated under the laws of Mauritius or of the companies whose branches are from abroad. The Act seeks to incorporate international best practices and promote accountability and fairness.
Foreign Exchange Act 1995: The act involves guidelines that persons who are in the foreign exchange business must adhere to. It also allows banks to trade in the currency at a certain limit while charging a certain fee.
The Saving Bank Act 1975: It provides ground rules for the establishment and gives them the power to receive money and store it for a specific period. It involves how the saving bank should be managed by providing guidelines.
Court Act 1945: It states that all banks should provide admissible machine copies as evidence of transactions. The presentation of copies to the court should be in paper form. The evidence is for civil and criminal cases and proceedings. However, a bank is not to reveal information to the court unless ordered do through a court order.
Mauritian Civil Code: It entails contractual agreements of every party when a transaction is to undertake. It will also involve the obligations of each party, and the finalized agreement. For the contract to be justifiable, both parties must sing the contract.
The government also incorporated the Financial Service Act 2007, Trust Act 2001, Prevent of Corruption Act, Prevent of terrorism Act and Financial Intelligence and Anti-Money Laundering Act to assist in reducing corruption and terrorism banking in the country (Qatar Financial Centre. 2009, 23).
The issues that the banking, insurance and global businesses in Mauritius face.
Disclosing and sharing of information is one of the issues that affect the financial sector in Mauritius. The banks are not allowed to disclose information unless is by a court order and only allowed to share information while under treaties.
Regulatory Issues such as Consumer Protection Act make it hard to implement risk management reforms. The risk management reforms tend to create transparency and stability in the global banking system. When the environment changes, such as the occurrence of a risk, financial institutions have to change their risk management reforms to measure and manage a risk.
The shift in technology: Technology is slowly progressing and with its advantages come to some disadvantages. Banks may face certain challenges when it comes to technology such as continuous development and incorporation of new technology to mobile banking. It is tedious as technology never stays constant. The other issue that comes with technology is constant migration from old technology architectures to next-generation capabilities. The problem will increase operation expense of the financial institution.
Security: the use of technology brings about the issue of security. It means that the bank will have to safeguard its information, but the threat is present. Some of the threats that it may experience are data breaches through hacking, computer fraud, and SQL injections (Mayes, D. G., & Wood, G. E. 2006, 12). Research done on cyber security has shown that the advancement of technology increases the computer security threats to more than 70% at the end of the year 2015 (Stainbank & Tauringana, 2016, 445). The problem is serious as information is vital in this kind of business and if tampered with can lead to losses.
Consumer Preference: As time goes by the market changes due to unforeseeable factors. The shift in the environment can cause a change of the consumer preference for product and service. The challenge here is inevitable for financial institutions as the market is not a constant variable that highly affect the consumer preference which can impact either positively or negatively on demand. The issue will invariably require the attention of the bank to improve the bank's services and products to be able to maintain and increase demand, and this is done by always coming up with new ideas (Greenbaum & Thakor, 2007, 113).
Competition: Mauritius is a growing economy that is heading to prosperity. It is composed of the 21 banks and other subsidiary banks in the country. It just shows that the level of competition in the banking sector is high. The banks struggle to keep up to date with its competitors. The level of competition is based on foreign investments and banks try to attract customers for offshore accounts.
Other issues that are faced are such as sustaining profitability with low-interest rates, strengthening capital positions, developing reliable sources of revenue, restoring organization’s confidence, increasing business value to consumer relations and incorporating culture management in the organization’s daily activities (Macneil & O'brien, 2010, 67).
THE PANAMA PAPER ISSUE
The Panama papers are over 11m documents that were leaked from Mossack secret offices to the media by International Consortium of Investigative Journalist (ICIJ). The release report shows that Mossack was at the center of money-laundering and tax scandal. The company, Panamanian Law Firm Mossack Fonseca, was said to be engaged in activities that assisted its clients to dodge sanctions, evading tax and money laundering without offshore jurisdiction. The issue shows that the globalization system is not working.
The Panama Paper issue involved big company, prominent politicians, and famous people. Mauritius takes part in this matter. The country has double tax agreements with other nations such as Uganda meaning that the company would pay tax in only one of the countries. The company involved is Heritage Oil and Gas LTD. Mauritius does not impose Capital Gains Tax, which is the charge on the sale of assets, this will lead to a reduction of HOGL to zero. The company used Mauritius to eliminate tax charge by Ugandan Authorities. The Panama papers revealed that HOGL was a client of Mossack Firm.
One can view the results of this action in the sales sheet of HOGL at the end of the year 2010. HOGL sold 50% stake to Uganda, which imposed the $404m capital gains tax on the transaction. Mauritius is the one that had to pay the claim; this was one of the consequences of the operation proving it has severely dwindled. Apart from that, the claims may be severe enough to impeded Mauritius from being a gateway of investment to Africa (Kawai & Prasad, 2011, 234).
References
Alexander, K., Dhumale, R., & Eatwell, J. (2006). Global governance of financial systems: the international regulation of systemic risk. Oxford, Oxford University Press. http://public.eblib.com/choice/publicfullrecord.aspx?p=3051958.
Felsenfeld, C. (2007). International banking regulation. Huntington, N.Y., Juris Pub.
Gup, B. E. (2000). The new financial architecture: banking regulation in the 21st century. Westport, Conn, Quorum Books. http://public.eblib.com/choice/publicfullrecord.aspx?p=283706.
Greenbaum, S. I., & Thakor, A. V. (2007). Contemporary financial intermediation. Amsterdam, Elsevier Academic Press. http://site.ebrary.com/id/10186297.
Kawai, M., & Prasad, E. (2011). Financial market regulation and reforms in emerging markets. Washington, D.C., Brookings Institution Press. http://public.eblib.com/choice/publicfullrecord.aspx?p=682416.
Macneil, I., & O'brien, J. (2010). The future of financial regulation. Oxford, Hart. http://site.ebrary.com/id/10413469.
Mayes, D. G., & Wood, G. E. (2006). The structure of financial regulation. New York, NY, Routledge. http://site.ebrary.com/id/10156575.
Stainbank, L., & Tauringana, V. (2016). Determinants of and Obstacles to the Adoption of International Financial Reporting Standards in Africa.
Snyder, E. (2012). Banking regulation. Madison, Wis, Wisconsin Legislative Reference Bureau.
Qatar Financial Centre. (2009). Qfinance: the ultimate resource. London, Bloomsbury.
