Updates on the Financial Services (Robotic and Artificial Intelligence Enabled Advisory Services) Rules 2021 (the “Rules”)

On the 18^th June 2021, the FSC issued the Financial Services (Robotic and Artificial Intelligence Enabled Advisory Services) Rules 2021 (the “Rules”) to provide a regulated framework aimed at promoting the adoption of new and emerging technologies by licensed service providers in Mauritius.

Over the recent years, financial institutions have been adopting Regulatory Technology (RegTech) solutions through in-house use of programmes developed and maintained by specialised service providers or as part of an outsourcing arrangement.

For instance, innovative technology-driven insurance solutions (InsurTech) have been developed, including technology-assisted underwriting for improved accuracy, big data analytics to predict client behavioural patterns for risk assessment or Artificial Intelligence-powered claim management systems.

In this context, the Rules shall apply to any person holding the Robotic and Artificial Intelligence Enabled Advisory Services (RAIEAS) licence.  An overview of the key requirements under the new Rules is provided below.

 

General Obligations

Any person holding the RAIEAS licence (“licensee”) is required to:

1. have its principal bank account in Mauritius;
2. establish an office and relevant infrastructure for the carrying out of RAIEAS in Mauritius;
3. implement adequate internal controls, risk management (including cyber risk management), as well as governance policies and procedures;
4. put in place a business continuity and disaster recovery plan;
5. preserve the integrity and privacy of its clients’ information in conformity with the applicable Data Protection Laws of Mauritius;
6. be managed by a board of directors consisting of a minimum of three directors, one of whom shall be an independent director and a resident of Mauritius;
7. employ an adequate number of officers with adequate competence, experience and proficiency, and commensurate with the size, nature and complexity of its services; and
8. have in place such code of conduct and ethics which shall be binding on its officers in relation to the provision of its services.
9. have a minimum stated capital of MUR 600,000 or its equivalent in another currency.

 

In addition, the Rules condition that:

• It is compulsory to have a RAIEAS licence to carry out its services.
• A person applying for a RAIEAS licence can apply for other licences.
• Application for RAIEAS can be made in accordance with Part IV of the Financial Services Act 2007 (“FSA 2007”).

 

For Reference, below is a replicate of Part IV of the FSA 2007:

An application for a licence shall be made in the manner specified by the FSC along with: ·         a business plan/ feasibility study outlining the proposed business activity; ·         Information related to customer due diligence of promoters/beneficial owners/controllers/proposed directors in the form specified by FSC rules; ·         Fees specified by FSC Rules; ·         such other information as may be specified in FSC Rules or otherwise required by the Commission to determine the application.   An applicant shall notify the Commission of any material change which may have occurred, whether before or after the issue of a licence, in the information provided in the application.   An application for a licence shall include an authorisation for any regulatory body, law enforcement body or financial institution, in Mauritius or in a foreign country, to release to the Commission, for use in relation to the application and the enforcement of this Act, any information about the applicant, and any of its promoters, officers or controllers, as may be applicable. Where the applicant is not an individual, such an authorisation shall be given by each of the directors of the applicant or by 2 directors duly authorised by a resolution of the Board of Directors

 

Transition Provisions

Any person who was carrying out RAIEAS before commencement of these Rules should, within 3 months of the commencement of these Rules, apply for the RAIEAS licence. Failing to do so will result in an offence under S14 of the FSA 2007.

 

Insurance Obligations

A licensee should have professional indemnity insurance to indemnify the company, employees and a person acting on his behalf against liability for the sum of at least MUR 2 Million or higher amount.

The licensee should also always have a separate account from the client’s funds and the funds should be in duly licensed bank.

 

Due Diligence Obligations

The licensee should conduct due diligence on its clients in accordance with:

• Financial Intelligence and Anti-Money Laundering Act;
• Financial Intelligence and Anti-Money Laundering Regulations 2018 or any similar Regulations made under the Financial Intelligence and Anti-Money Laundering Act; and
• Financial Prohibitions against Listed Parties under the United Nations (Financial Prohibitions, Arms Embargo and Travel Ban) Sanctions Act.

 

A Robust Framework

In addition, the board of directors (“the Board”) should ensure that the licensee has adequate policies and controls to ensure that algorithms are performing as intended as well as a framework for design and monitoring of the algorithms for periodic or random reviews.

The Board should also be ensured that there are competent officers to develop and review algorithms even if the functions are outsourced.  No licensee shall be allowed to outsource the key processes and management of their client-facing tools.

 

Service Level Agreement

A licensee shall enter into a service-level agreement with its clients before providing any services to the clients.

The service-level agreement shall contain the following information:

• any exclusivity agreements which may have been entered by the licensee with a particular financial services provider in relation to the provision of its services; and
• specific conditions or triggers which can result in the discontinuation of its services and possible use or replacement of human judgment.

Prior to providing any services, a licensee shall obtain a written confirmation from its clients that they understand the scope and nature of the advisory services together with the associated risks and limitations.

 

Record Keeping Obligations

The licensee shall maintain:

• A copy of the advice provided through RAIEAS and the output of the investment.
• Information received from the client which was relied on to generate advice
• Details of the algorithms and software used by licensee.

In addition, a licensee is mandated to submit the followings:

• Audited financial statement according to S30 of FSA.
• Independent evaluation reports about algorithms and software systems once every 2 years from the date of licence or following any material changes.

The Rules also require licensees to seek prior approval before appointing independent persons or experts who shall be assigned these responsibilities.

 

HOW CAN TEMPLE CONSULTING ASSIST YOU?

Temple Consulting Ltd (‘TCL’) established in 2007, has been assisting financial entities in meeting their regulatory and legal requirements through various compliance exercises, including application of the risk-based approach and support with regulatory inspections. If any of the issues mentioned in this article are of interest to your organization, get in touch! We are happy to assist.

 

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