Mauritian Assembly Approves New Banking Legislation

by Lorys Charalambous, for Lawandtax-news.com, Cyprus

13 September 2004

The Mauritius National Assembly last week passed unanimously two bills - the Bank of Mauritius Bill and the Banking Bill - designed to give the Central Bank more autonomy and to remove differences between the offshore and onshore banking regimes.

Among the speakers in the debate was Sushil Khushiram, who emphasized the importance of transparency and good corporate governance for the Central Bank. He noted that it is a world-wide tendency for monetary affairs to be under the supervision of central banks, while economic and fiscal management belongs to finance ministries.

Prime Minister Paul Berenger said it was the government's decision to give the Bank of Mauritius real independence. He also made a point of mentioning the statutory basis for banking confidentiality incorporated in the new legislation. Requests for information in future would have to be authorised by a judge of the Supreme Court.

Although the opposition had some criticisms of some aspects of the corporate governance regime set up for the central bank, and of the bank's supervisory procedures, these weren't sufficient to prevent the unanimous vote in favour of the bills.

Once the new law is in force, the Bank of Mauritius will offer only one type of banking licence as opposed to the two (onshore and offshore) currently available. The Banking Bill clarifies the division of responsibilities for the financial; sector between the central bank and the Financial Services Commission. The bill will also annul the existing Foreign Exchange Dealers Act; in future, such dealers will fall under the aegis of the central bank.

The existing rule that 40% of a bank's directors should be independent, currently forming part of the Rules on Corporate Governance issued in 2001, will become part of the new law. The definition of independent director will be: 'having no relationship with, or interest in, whether past and present, the financial institution or its affiliates, which could reasonably be perceived to materially affect the exercise of his judgment in the best interest of the financial institution'.

The minimum capital requirement for a bank will be increased from Rs 100m to Rs 200m, but banks will be allowed to increase their capital in two stages, from Rs 100m to Rs 150m by 1st July, 2005, and then to Rs 200m by 1st July, 2006.

The new law will give the central bank power to appoint a 'Conservator' to protect the assets of a bank's depositors if 'the financial institution has, or its directors have (i) engaged in practices detrimental to the interests of its depositors, (ii) knowingly and negligently permitted its chief executive officer, any of its managers, officers or employees to violate any provision of the banking laws, any enactment relating to anti-money laundering or prevention of terrorism or guidelines and instructions issued by the Central Bank. The law also enables the central bank to establish a deposit insurance scheme as a protection 'against the loss of part of all of deposits in a bank that will contribute to the stability of the financial system in Mauritius and minimize the exposure to loss'.

Other provisions include a strengthening of KYC rules, laying down that 'every financial institution shall only open accounts for deposits of money and securities, and rent out safe deposit boxes, where it is satisfied that it has established the true identity of the person in whose name the funds or securities are to be credited or deposited'. Banks will also have to rotate their auditors at least once every five years.

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