The Finance (Miscellaneous Provisions) Act 2018 amends the list of financial business activities set out in the Second Schedule to the Financial Services Act to include ‘Custodian services (digital asset)’ and ‘Digital asset marketplace’. This amendment comes into operation on 1 October 2018.
On 17 September 2018, the Financial Services Commission (“FSC”) published a Guidance Note, titled ‘Recognition of Digital Assets as an asset-class for investment by Sophisticated and Expert Investors’ to provide clarifications on its position concerning investment in digital assets, including cryptocurrencies. The FSC considers cryptocurrency as a sub-category of digital assets.
The FSC considers as ‘digital asset’, any token, in electronic form, which is representative of either the holder’s access rights to a service or ownership of an asset. A ‘digital asset’ is defined to include a digital representation of value which:
(i) is used as a medium of exchange, unit of account, or store of value but which is not legal tender, even if it is denominated in legal tender;
(ii) represents assets such as debt or equity in the promoter; or
(iii) provides access to a blockchain-based application, service or product.
However, the following is excluded from the expression ‘digital asset’:
(i) any transaction in which a business, as part of an affinity or reward programme, grants value which cannot be exchanged for legal tender, bank credit or any Digital Asset; or
(ii) a digital representation of value issued for use within an online gaming platform.
As regards cryptocurrencies, the FSC recognises that they are a store of value on the basis that they are exchangeable for other things having value, hence showing characteristics similar to commodities such as precious metals.
In the Guidance Note, the FSC recognises that digital assets, including cryptocurrencies may constitute an asset-class for investment. The FSC states that such type of investment may however be made by (i) Sophisticated Investors; (ii) Expert Investors; (iii) Expert Funds; (iv) Specialised Collective Investment Schemes; and (v) Professional Collective Investment Schemes. The FSC however issues a word of caution: investments in digital assets and cryptocurrencies is at the risk of the investors and are not protected under any statutory compensation arrangements.
The amendment to the Second Schedule to the Financial Services Act brings legal certainty regarding investment in digital assets including cryptocurrencies: a licence will soon be required from the Financial Services Commission to provide custodian services (digital asset) and to operate a digital asset market place. However, further developments are expected in the Fintech legal and regulatory landscape. It is understood that the Fintech and Innovation-Driven Financial Services Regulatory Committee which was set up in February 2018 to make recommendations on the need to introduce regulations for Fintech and innovation-driven Financial Services, has submitted its Report to the relevant authorities. There is no doubt that the Report will set down the main areas which the Mauritian Fintech legal and regulatory framework will need to address.