Mauritius funds
How collective investment schemes are regulated
Mauritius’ statute law on collective investment schemes is contained in the Securities Act 2005. Appleby reports on how these schemes are regulated
The Financial Services Commission has, since its coming into existence in 2001, developed a very flexible set of guidelines for the regulation of collective investment schemes in Mauritius, adopting what it considers industry best practices from various long established and well regarded jurisdictions.
This has, over the years, resulted in over 400 investment funds having been incorporated in Mauritius and assets in excess of $35 billion being managed from within Mauritius. This trend is set to grow with the recent coming into force of the Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008, the Securities (Licensing) Rules 2007, the Financial Services Act 2007 providing a modern, comprehensive legislative and regulatory framework for the setting up and administration of funds in Mauritius.
The business purpose of these schemes is to make collective investment of funds in a portfolio of securities, or other financial assets, real property or non-financial assets, whose operation is based on the principle of diversification of risk for the benefit of global business fund members.
Collective Investment Schemes: means a scheme constituted as a company, a trust (including a unit trust), or any other legal entity prescribed or approved by the Commission: (i) whose sole purpose is the collective investment of funds in a portfolio of securities, or other financial assets (such as real property or non-financial assets as may be approved by the Commission); (ii) whose operation is based on the principle of diversification of risk; (iii) that has the obligation, on request of the holder of the securities, to redeem them at their net assets value, less commission or fees; and (iv) where the participants do not have day to day control over the management of the property, whether or not they have the right to be consulted or to give directions in respect of such management. Collective investment schemes include closed-end funds whose shares or units are listed on a securities exchange.
Closed-end Funds: means an arrangement or a scheme, other than a collective investment scheme, constituted in such legal form as may be approved by the Commission and whose object is to invest funds, collected from subscribers during an offering made under the Securities Act or from sophisticated investors, in a portfolio of securities, or in other financial or non-financial assets, or real property, as may be approved by the Commission. Closed-end funds usually have a fixed share capital and typically restrict investors’ rights to call for their shares to be redeemed at net asset value by the fund.
However, a close-ended fund may also be listed on the Mauritius Stock Exchange, which preventing any lock-in, enables investors to buy and sell shares in the market. A sophisticated investor is defined by the Securities Act 2005 as the government of Mauritius, a statutory authority or an agency, a company owned by the Government of Mauritius or a statutory authority or agency, a government of a foreign country, or an agency of such government, or a bank, a CIS manager, an insurer, an investment adviser, an investment dealer, or a person declared by the Commission to be a sophisticated investor.
Recognition of foreign schemes
The Commission may, on application, also recognise collective investment schemes established in a foreign country. Recognition may be subject to such conditions that the Commission considers necessary or desirable for the protection of participants in the scheme. It is also possible to constitute an umbrella fund under each of the foregoing structures, allowing investors to switch their investment from one sub-fund to another without redeeming shares or units.
Under the current flexible approach, a Mauritius global business fund can also be set up as sub-fund under a non-Mauritius based umbrella fund, or as a feeder fund for a non-Mauritius based master fund.
Regulation and compliance
Any collective investment scheme or closed-end fund wishing to be approved, registered with, recognised and/or licensed by the Commission under the Securities Act must first apply to the Commission for the authorisation as a collective investment scheme or closed-end fund under the Securities Act in the manner set out in the Securities Regulations 2008 and obtain a Category 1 Global Business Licence (a GBL1) under the Financial Services Act 2007 (for global schemes).
Category 1 global business licence
An application for a category 1 global business licence (a GBL1) may only be made through a management company in such from as may be approved by the Financial Services Commission (§72(1) of the Financial Services Act 2007). Any entity holding a GBL1 is allowed to undertake from within Mauritius any business activity which is not illegal or against public policy. GBL1 holders can avail of the benefits under the various tax treaties to which Mauritius is a party, provided they qualify as resident under the taxation laws of Mauritius. In order to satisfy this requirement, the Financial Services Act requires that the GBL1 be managed and controlled from Mauritius.
To be deemed resident in Mauritius under the taxation laws, a GBL1 entity should (§71(4) FSA): have at least two directors, resident in Mauritius, of sufficient calibre to exercise independence of mind and judgment; maintain at all times its principal bank account in Mauritius; keep and maintain its accounting records at its registered office in Mauritius; prepare its statutory financial statements and/or cause to have such financial statements to be audited in Mauritius; and provide for meetings of directors to include at least two directors from Mauritius
Applications to the Commission can only be submitted through a duly licensed management company and must be accompanied by the prescribed processing fees, a law practitioner’s certificate certifying that the application complies with the laws of Mauritius and any other information which the chief executive of the Commission may request (§72 FSA). A company may also apply for a GBL1 while in the incorporation process. Once incorporated and the applicant has accepted any conditions as may be laid down by the Commission, the latter shall then issue the GBL1 after the payment of the prescribed licence fee, which is renewable every year.
CIS administrators, custodians, managers and auditors
The current regulatory regime also requires that schemes, subject to the prior approval of the Commission, appoint local and duly licensed CIS administrators, managers and custodians and auditors.
CIS administrators: Under the present regulatory framework, schemes holding Category 1 Global Business Licences in Mauritius, in accordance with the Securities Act and the FSA 2007, must, at all times, be administered by a qualified management company, duly regulated and licensed by the Commission and holding a valid management licence. CIS administrators, subject to the prior approval of the Commission and to such terms and conditions the Commission may deem appropriate, may be appointed by collective investment schemes or closed-end funds (or CIS managers acting on their behalf), to provide administrative services.
Administration services, under the Securities Act, are restricted to services with respect to the operations and administrative affairs of collective investment schemes or closed-end funds including accounting, valuation or reporting services and/or the provision of the principal office of a collective investment scheme. When seeking the approval of the Commission, the applicant must provide details specifying the administrative services that the CIS administrator will provide, full details on the CIS administrator, the fees specified in the FSC rules and any other information required by the Commission.
Custodians: The assets of the collective investment scheme or closed-end fund cannot not be held for safekeeping by a person other than a person approved by the Commission or licensed as a custodian under the Securities Act and who shall be independent from the CIS manager. Every collective investment scheme or closed-end fund shall appoint and shall at all times have a custodian.
The responsibility of the custodian is to take the assets of the scheme into its custody for safe-keeping and hold and deal with the assets in accordance with the provisions of the Securities Licensing Rules and the constitutive documents of the scheme. The custodian shall not exercise any function or activity in relation to a scheme, other than that for which it has been licensed.
Assets of a collective investment scheme or closed-end fund, other than a global scheme, shall be kept in Mauritius except where it is appropriate to keep them outside the country to facilitate transactions outside Mauritius. In the event of the above, the custodian must appoint a sub-custodian in accordance with the provisions of the Securities Licensing Rules or any other applicable regulations in force from time to time; however the delegation of custodial authority to a sub-custodian does not relieve the custodian from any of its obligations to the scheme, the CIS manager or to the Commission. Both the custodian and the sub-custodian shall act independently from the CIS manager and the scheme.
The Commission will not usually grant a custodian licence to a person unless the person:
- is a bank or is a trust company (set up under the Trust Act 2001 or under the repealed Unit Trust Act 1989 of Mauritius) that is a subsidiary of a bank; • is a Trust set up under the Trust Act 2001 or under the repealed Unit Trust Act 1989 of Mauritius, acting as custodian in relation to the property of a trust; and
- meets the requirements relating to duties and obligations, use of sub-custodians and other conditions as may be prescribed or specified in FSC rules as may be amended from time to time. Where the assets of a scheme is not registered in its name, it shall be registered in the name of the custodian or a sub custodian of the scheme, or any of their respective nominees, with an account number or other designation in the records of the custodian or sub-custodian so as to establish that the ownership of the assets is vested in the scheme.
A custodian or sub-custodian may arrange for the deposit of assets of the scheme with, and their delivery to, the CDS or a clearing and settlement facility or a foreign regulated depository or clearing agency provided that the records of either the participant in the book-based system or the custodian or sub-custodian establish that the ownership of the assets is vested in the scheme.
CIS managers: A collective investment scheme or closed-end fund, other than a global scheme, shall appoint and have, at all times, a CIS manager duly licensed by the Commission and having a place of business in Mauritius. No person shall act as the fund manager (the CIS manager) for a collective investment scheme or closed-end fund unless the person holds and is complying with the conditions of a CIS manager licence issued by the Commission. The CIS manager holding a valid CIS manager licence shall not engage in any activity other than the management of scheme.
The Commission shall not grant a CIS manager licence to an applicant unless:
- the applicant is a body corporate;
- the Commission is satisfied that the applicant will be able, if licensed, to comply with the requirements of the FSC rules as to the financial and other resources requirements needed by the CIS manager for the collective investment scheme; and
- the applicant and each of its officers are fit and proper persons and meet the requirements relating to eligibility, duties and obligations, rules of ethics and other such conditions as may be specified in FSC rules.
The Commission may, on application, exceptionally allow a company to be managed by its own board of directors, provided that the board of directors performs the functions of a CIS manager and such directors are jointly bound and responsible to perform the functions of the CIS manager. A CIS manager, subject to the Securities Act, the Securities Licensing Rules or any relevant rules, may carry out any of the activities related to the management of a scheme including:
- all administrative services required by the scheme;
- provision of registrar and transfer facilities;
- distribution of the securities of the scheme;
- maintaining accounting records of the scheme;
- giving investment advice in relation to the scheme; and
- managing the portfolio of the scheme.
A collective investment scheme or closed-end fund (or the CIS manager where applicable), shall not, without the prior approval of the Commission, replace its CIS administrator, manager or custodian. Written notice of any proposal to replace the CIS administrator, manager or custodian of a collective investment scheme or closed-end fund must be given to the Commission. Such replacement will only be effective if the shareholders of the scheme have approved the change in accordance with the constitutive documents (where applicable) and the Commission has given its approval to the proposed replacement.
Auditors: Under the present regulatory framework, schemes, subject to the prior approval of the Commission, are required to appoint auditors in accordance with the law. The Commission will not approve an audit firm unless it is satisfied that the audit firm has adequate experience, expertise and resources to carryo ut such an audit. The Commission may require that the auditor of a scheme submits such additional information in relation to his audit as the Commission considers necessary. Schemes are however not prohibited from instructing overseas investment advisers to manage their assets, and may still execute management decisions in relation to investment and disinvestment overseas. Nothing prevents non-Mauritius based intermediaries from participating as distributors or nominees.
Company secretary
A GBL1 company must have a minimum of one company secretary, who must be a natural person ordinarily resident in Mauritius, although a corporation may act as secretary with the approval of the registrar and subject to certain specified conditions. Our associated licensed management company, Appleby Management (Mauritius) Ltd. offers corporate administrative and resident representative services.
Reporting obligations for collective investment schemes
Under the Securities Regulations 2008, collective investments schemes are required to file with the Commission their annual audited financial statements within six months after the close of its financial year, prepared in accordance with International Financial Reporting Standards and audited in accordance with the International Standards on Auditing, and such other standards as may be acceptable under the Financial Reporting Act 2004, by an audit firm approved by the Commission.
Additionally to annual filings, the Commission also requires collective investment schemes to file quarterly interim financial statements and management reports in prescribed forms.
Authorisation of global business funds
General requirements
The Commission may authorise a collective investment scheme on the condition that general details of the scheme, are submitted when an application for authorisation is filed. The documents accompanying an application for authorisation normally include the scheme’s prospectus/PPM or any offer document which conforms to the Fourth Schedule, or for a foreign scheme a copy of the prospectus or similar offering document filed in another jurisdiction, the constitutive documents of the scheme, disclosure on measures taken to prevent money laundering and financing of terrorism, customer due diligence documents on the promoters of the scheme, fee structure (including level charges payable by participant), and the minimum initial subscription and minimum subsequent holding in the scheme.
The above documents should establish, among other things, that the scheme has been constituted in compliance with the provisions of the Securities Regulations 2008, the officers of the scheme are fit and proper persons, and that the requirements for the minimum subscription will be reached during the first 6 months of the offering period (namely 5% of total amount to be raised) of the scheme.
Additional requirements for foreign schemes
The Commission may, on application, recognise collective investment schemes established in a foreign country. Recognition is subject to such conditions that the Commission considers necessary or desirable for the protection of participants in the scheme. The Commission normally recognises foreign schemes upon provision of the following:
- Documentary evidence of the foreign scheme’s constitution, establishment and good standing in the relevant jurisdiction, including details of the authoritative body and/or regulator; and
- The foreign scheme must meet any other requirements in the Securities Regulations 2008 that the Commission may consider applicable and especially Annex 6 Securities Regulations 2008 Third Schedule – Information to be contained in an application for authorisation and Annex 7 Securities Regulations 2008 Fourth Schedule – Prospectus of a Collective Investment Scheme.
