The financial services sector has undergone major changes worldwide with the advent of technology. One of these areas of development include Peer-to-Peer Lending. Peer-To-Peer-Lending (P2P), also referred to as Crowdfunding, is a method whereby multiple small investors collectively lend money to specified projects listed by borrowers in return for interest payments. With the rationale behind this set up being to foster innovation in the financial services sector, Peer to Peer Lending has seen an increasing growth in recent years, especially vis a vis newly set-up entities since it means that loan financing has been simplified and made easily accessible without the intervention of conventional banks.
Peer-to Peer Lending in The Mauritian Context
The Mauritius International Financial Centre (MIFC) has proven to be dynamic and consistent in its approach to achieve the ultimate objective of keeping pace with the fast-moving global financial industry. Since 2017, the MIFC has launched its own regulatory framework for Peer-to-Peer Operators albeit on a restricted basis by restricting borrowing to local residents, imposing limits of lending per lender and a limited maturity period. Based on the effectiveness and the benefits derived from this digital platform, the Financial Services Commission (“FSC”) has issued The Financial Services (Peer to Peer Lending) Rules 2020 – a constitutive document applicable to P2P Operators who are subject to AML/CFT framework. This set of rules has also enhanced the value of P2P lending by allowing access to foreign borrowers and relaxing the lending limits for potential lenders. To further attract P2P operators, the Mauritius Budget 2019/2020 announced a five-year tax holiday for P2P Operators, provided the company starts its operation prior to 31 December 2020.
Updates in Peer-to-Peer Lending Rules
On the 6th of March 2021, the Financial Services Commission (“FSC”) has issued the Financial Services (Peer to Peer Lending) (Amendment) Rules 2021 which was followed by its publication in the Government Gazette.
Rule 2 of The Financial Services (Peer to Peer Lending)Rules 2020 which provides, inter alia, for the definition of a) Escrow Account –an account held by the P2P Operator on behalf of lenders and borrowers of a Peer to Peer Lending platform and b) Sophisticated Investors – which has the same meaning as in the Securities Act 2005, have been removed under Rule 3(a)(i) and Rule 3(a)(ii) of The Financial Services(Peer to Peer Lending) (Amendment) Rules 2021 respectively and replaced by Rule 3(a)(iii) of this same set of new peer to peer lending rules with the terminology of “Expert Investor” which has the same meaning as in the Securities (Collective Investment Schemes and Closed-end funds) Regulations 2008.
Rule 6(1)(a) of The Financial Services (Peer to Peer Lending) Rules 2020 which states that a borrower shall not borrow through a P2P Operator an amount less than Rs 50,000 has been repealed under Rule 3(b)(i) of The Financial Services (Peer to Peer Lending) (Amendment) Rules 2021.
Rule 6(1)(b)(ii) of The Financial Services (Peer to Peer Lending) Rules 2020 which provides for lending limits of Rs 3 million when the borrower is a legal person has been amended such that the lending limits for such borrower is now Rs 5 million. This is evidenced by Rule 3(b)(ii) of The Financial Services (Peer to Peer Lending) (Amendment) Rules 2021.
Rule 6(1)(d) of The Financial Services (Peer to Peer Lending) Rules 2020 states that the lending limits applicable to both lenders whether they are natural persons or legal persons when they transact through P2P operators shall not apply to sophisticated investors when they lend in any other currency through P2P Operators to borrowers that are not resident in Mauritius. This provision has been replaced by Rule 3(d) of The Financial Services (Peer to Peer Lending) (Amendment) Rules 2021 which now states that the lending limits, applicable to both lenders whether they are natural persons or legal persons, under Rule 6(1) (c) The Financial Services(Peer to Peer Lending)Rules 2020 shall not apply to expert investors lending through P2P Operators to borrowers resident in or outside Mauritius.
Rule 13 of The Financial Services (Peer to Peer Lending)Rules 2020 states that P2P Operators shall be required to open escrow accounts with a licensed financial institution in Mauritius in order to facilitate the transfer of funds between lenders and borrowers through P2P lending platform. This has been replaced by Rule 13 of The Financial Services (Peer to Peer Lending) (Amendment) Rules 2021 which now dictates that P2P Operators must ensure that the funds of lenders and borrowers are maintained separately from its own funds in line with Rule 13(1) and for the purposes of Rule 13(1), Rule 13(2) states that the funds shall be maintained through appropriately identified bank accounts in Mauritius.
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.
Contact us on templeconsulting@templegroup.mu
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