Rameswurlall Basant Roi: Cross-border banking and regulatory
reforms - implications for Africa from international experience
Opening address by Mr Rameswurlall Basant Roi, Governor of the Bank of Mauritius, at the Joint
IMF/BCBS/Making Finance Work for Africa Conference, IMF Africa Training Institute, Ebene, 1
February 2017.
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Managing Director of the IMF, Madam Christine Lagarde
Chairman of the Basel Committee on Banking Supervision
Fellow Governors
Executive Directors and Senior Officials of the IMF
Distinguished Guests
Ladies and Gentlemen
Good afternoon
I am pleased to welcome you all to Mauritius. I wish you a pleasant stay with us. I thank the
organizers of the Joint IMF/BCBS/Making Finance Work for Africa Conference for inviting me to
give the opening address today. May I extend my appreciation to the Mauritius IMF Africa Training
Institute for hosting this Conference.
When I was here recently, I was asked to give a closing address to a house-full audience of
course participants. I had shared with them my personal experience as regulator of all deposit
taking institutions in Mauritius. While narrating to them a number of enlightening anecdotes
related to events leading to the revocation of banking licenses, problems associated with crisis
resolution and presenting them with the risks and challenges that regulators face in the
globalized world, I read in their looks the enthusiasm and the eagerness to take their regulatory
and supervisory responsibilities seriously. Interestingly, I found out that regulators in Africa are
keen to have better regulatory structures. Understandably, one hampering factor - apart from an
acute shortage of highly skilled and seasoned bank examiners - that overwhelms all other
considerations is national interests as opposed to the soundness and stability of financial
industries at the regional, pan-African or global level. The political will is thus seen to be missing.
It's a problem not confined to Africa only.
I believe that it's in order for me to give a very quick and broad brush-stroke of our experience
with the regulation and supervision of banking and cross-border banking activities.
Mauritius was a regional hub for payments and settlements since the 17th century. Traders from
the West, the Middle East, India and China crossing this part of the world used to regularly meet
here in Mauritius for purposes of payments and settlements. The piastres, Indian rupee, Pound
sterling, the US dollar, gold and silver used to be the means of payments and settlements. A
characteristic feature of the hub was free banking. There was no regulatory authority and
therefore no licensing authority. Banks used to issue their own paper currencies. And, of course,
banks used to collapse quite often. The seed of frequent bank failures resided mostly in the
recklessness with which banks issued their respective banknotes. The authority's anxiety with
regard to the sustenance of confidence and stability in the then monetary system had led to the
setting up of the Board of Commissioners of currency in 1864, the first in the world. By the end
of the l9th century the hub had lost its significance. Rivalries between bankers had led to the
establishment, in 1838, of what is today the largest domestic bank in Mauritius. Two British
banks having large cross-border banking activities the world over have been present in Mauritius
for more than a century. Soon after World War II, it was realized that our financial system
needed to be regulated. Licensing of banks was introduced. To prevent banks from collapsing
due to stresses and strains caused by massive repatriation of funds, exchange control was
introduced in 1951. Ever since the establishment of the Board of Commissioners of currency a
running thread of preoccupying concern has been the soundness and stability of our financial
system.
Regulation and supervision of banks started formally in the very early 1970s. Of the 8 banks then
in operation, 5 were branches of international banks. A mix of home-host country regulations
guided their operations. In the first half of the 1980s, we initiated steps to gradually liberalize our
financial sector. In 1989, we established the offshore banking centre. Two types of banking
licenses were issued, one for banks carrying out exclusively offshore banking business and the
other for banks carrying out domestic banking business. By July 1994, with the suspension of
our Exchange Control Act, the gradual liberalization of the financial sector was completed. The
heightened pace of globalization and financial integration posed serious challenges for the banks
operating in Mauritius and for us as regulator. Admittedly, like other regulators in many
jurisdictions we were not prepared for the challenges. Subsequently, banks operating in the
offshore sector were brought within the purview of more or less the same regulatory and
supervisory norms as those applicable to domestic banks. The dual-licensing regime was done
away with.
One of the most meaningful developments, yet unrecognized, in the Mauritian economy over the
last 27 years has been the introduction in 2004 of a single license regime for banks operating in
our jurisdiction. It allowed what formerly were offshore banks to interact actively with the
domestic money and foreign exchange markets and with the domestic economy in general.
Cross-border banking activities decisively picked up. The Bank of Mauritius Act and the Banking
Act were both overhauled and suitably recast to meet emerging regulatory challenges.
Previously, quite some prudential norms set by the Bank of Mauritius used to be introduced by
way of regulations made by the Minister of Finance. They sometimes used to be lobbied against
in the halls of Government. By making the guidelines legal in the Bank of Mauritius Act 2004, the
Bank does not have to have recourse to Government for issuing guidelines to banks and is
therefore free pressures from the banking industry and other related parties. So far, the Bank of
Mauritius has issued 35 Guidelines to the banking industry. They all have authority.
As the financial integration accelerated, cross-border banking activities also accelerated in the
1990s. Today, cross-border banking activities account for 60 per cent of our banking industry's
businesses. Total banking assets are around 300 per cent of our GDP. The risks and
vulnerabilities to our financial industry and the economy are by no means negligible. Since the
beginning of the new millennium, the Bank of Mauritius took a number of regulatory and
supervisory initiatives a few of which are as follows:
1. The Bank entered into MOUs on cross border supervision and information sharing with 16 of
its counterparts. The MOUs set forth a statement of intent between the Bank and its
counterparts to establish a framework for mutual assistance, cooperation and exchange of
information in the fulfilment of the institutions' respective supervisory responsibilities;
2. The Banking Act allows for cross border cooperation in terms of group audit from parent
bank of the subsidiaries and branches of foreign banks in Mauritius;
3. Besides carrying out onsite examination of overseas subsidiaries of local banks, the Bank
has also engaged with its foreign counterparts to carry out joint examinations of entities
falling under its purview. The Banking Act allows host supervisors to conduct examinations
of banks in our jurisdiction;
4. Two years ago a huge financial conglomerate failed in Mauritius. The Bank of Mauritius Act
and the Banking Act were amended to enhance both consolidated and conglomerate
supervision;
5. The Bank of Mauritius attends the supervisory colleges of almost all the subsidiaries and
branches of foreign banks operating in our jurisdiction. The Bank has a policy of holding
supervisory colleges for the two largest domestic banks that have subsidiaries and
branches overseas;
6. A major risk associated with cross border operations is money laundering. The Bank of
Mauritius has continuously upgraded its guidelines on AML/CFT in line with FATF
recommendations. Strict enforcement of the guidelines has led to severe regulatory
sanctions against non-compliant institutions which explains why the Bank is unpopular, and
7. Given the acceleration of cross-border banking activities, the Bank of Mauritius is currently
strengthening its risk-based supervisory framework.
These initiatives are by no means adequate for effective regulation and supervision of our
banking industry. A lot more has to be accomplished. At some point in time this year, we would
be having a crisis resolution framework for Mauritius. Crisis avoidance, more so in an
increasingly digitalized financial world, requires far bolder initiatives to strengthen regulatory and
supervisory frameworks not only in Mauritius but in every other country in the African continent.
We are told that in the years ahead we will continue to be provided with banking and financial
services but banks, as we know them today, will no longer exist. We, regulators, have to be
steps ahead. Our regulatory and supervisory experience clearly demonstrates that effective
regulatory structures for cross border banking activities are indispensably needed. The absence
of a regional or pan-African regulatory structure is palpably felt for quite some years. The idea,
mooted already, of having a regulatory structure for overseeing banks having significant
crossborder banking activities does hold water. This could be a starting point.
Regulatory challenges keep multiplying on the regulators' table. For instance, we observe in our
jurisdiction here that the distinction between subsidiaries and branches are blurring. Instead of
being incorporated locally as completely separate legal entities, subsidiaries of big banking
groups are being organized along business lines. Different subsidiaries of the same banking
groups are being set up in different jurisdictions with different facilities and advantages. Would a
failure of one of the subsidiaries not bring down the entire group?
Ladies and gentleman, there is a multiplicity of complex regulatory issues that need to be
resolved by governments and regulatory authorities in the African continent. I do not wish to
preempt the panelists. We have the distinguished presence of seasoned regulators as panelists for
the Conference. I am confident that we will leave this place with a lot of ideas and options to
contemplate about.
May I thank the Managing Director of the IMF Madam Christine Lagarde and the Chairman of the
Basel Committee on Banking Supervision, Mr Stefan Ingves for being with us during the
Conference. I, once again, thank the Director of IMF Africa Training Institute for hosting the
Conference.
Thank you.