Yandraduth Googoolye: Cross-border regulation in relation to
digital assets
Speech by Mr Yandraduth Googoolye, Governor of the Bank of Mauritius, at the ADC Global
Blockchain Summit, Adelaide, 27 March 2019.
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The Honourable Steven Marshall, Premier of South Australia
Major General the Honourable Michael Jeffery, Forum Patron
Excellencies
Ladies and gentlemen
All protocol observed
1. Introductory Remarks
It is a great pleasure for me to be in the midst of such an august gathering today.
First of all, I would like to thank Honourable Steven Marshall MP, Premier of South Australia for
the invitation to attend this Summit 2019 and share my thoughts, as a central bank governor and
regulator of the banking sector in Mauritius, on cross-border regulation of Digital Assets.
I would also like to thank Loretta Joseph, Fintech Adviser to the OECD, for having facilitated my
participation to this Summit.
2. Fintech and Digital assets and central bank digital currencies
Fintech and digital assets are areas that the Bank of Mauritius has been following closely.
The international community has also shown keen interest in this sector.
The Financial Stability Board (FSB), Financial Action Task Force (FATF), International Monetary
Fund (IMF), Bank for International Settlement (BIS) and fellow foreign international standard
setters and regulators have shared their thought, concerns and recommendations regarding
fintech and digital assets.
We must obviously distinguish between digital assets and central bank digital currency. While
the latter are usually created and issued by central bank and is legal tender, digital assets, on the
other hand, are not "legal tender, and are not backed by any government or public authority" as
the Basel Committee on Banking Supervision clearly puts it.
The FATF recommends countries to consider virtual assets as "property," "proceeds," "funds",
"funds or other assets," or other "corresponding value"."
3. The need to regulate Digital Assets
History has shown that regulatory gaps or vacuum have contributed to perpetuate fraud, led to
financial crisis and undermined confidence in the financial services sector, amongst others.
The BIS, in its September 2018 Quarterly Review, reported that news pointing to the
establishment of legal frameworks tailored to cryptocurrencies and initial coin offerings coincide
with strong market gains.
There is need, therefore, for Digital Assets to be regulated. Indeed, regulation brings legal
certainty, legitimacy, trust and confidence in markets and will undeniably act as a catalyst in
promoting acceptance of digital assets.
These regulations should, nonetheless, not be too intrusive, but rather, it must be optimal and
enabling so as to promote innovation in this technology-driven sector.
4. International Standards and recommendation regarding Digital Assets
Prudential Norms
The Basel Committee on Banking Supervision has, on 13 March 2019, issued a Statement on
Crypto-Assets wherein the Basel Committee opines that "the continued growth of crypto-assets
trading platforms and new financial products related to crypto-assets has the potential to raise
financial stability concerns and increase risks faced by banks."
The Basel Committee has accordingly set out its prudential expectations related to banks'
exposures to crypto-assets and related services. The Basel Committee views that on account
of their high degree of volatility, crypto-assets present a number of risks for banks, including
liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money
laundering and terrorist financing risk; and legal and reputation risks.
The Committee therefore expects that if a bank is authorised and decides to acquire
cryptoasset exposures or provide related services, it should at a minimum:
Firstly, perform due diligence prior to acquiring exposures to crypto-assets or providing
related services,
Secondly, have a clear and robust risk management framework that is appropriate for the
risks of its crypto-asset exposures and related services;
Thirdly, publicly disclose any material crypto-asset exposures or related services as part
of its regular financial disclosures and specify the accounting treatment for such
exposures;
Fourthly, inform its supervisory authority of actual and planned crypto-asset exposure or
activity in a timely manner and provide assurance that it has fully assessed the
permissibility of the activity and the risks associated with the intended exposures and
services, and how it has mitigated these risks.
As regulators, it is our responsibility to ensure that supervised institutions are operated safely and
soundly and comply with applicable laws.
Within that framework, however, we also have a strong interest in permitting beneficial
innovations to flourish, while ensuring that the risks are appropriately managed.
It is, therefore, of paramount importance to ensure that regulatory and supervisory structures are
constantly adapted to changing technologies and business models for them to remain effective.
At the level of the Bank of Mauritius, our approach has been characterized by open minds and
open door policy. We welcome change in banks so long as they are able to demonstrate that the
risks are being appropriately and adequately managed.
Moreover, as all prudent central banks, the Bank of Mauritius will also pay special attention to the
recommendations of the Basel Committee and require banks operating in Mauritius to ensure
strict compliance thereto.
Addressing the concerns regarding Money Laundering and Terrorist Financing risks
Concerns have been expressed to the effect that digital assets offer some form of anonymity to
its holders if not properly regulated and controlled and may be subject to heightened money
laundering and terrorism financing (ML/TF) risks.
In an era where ML/TF risks are assuming increasing significance and may even result in
international sanctions and loss of correspondent banking facilities, regulators need to be
extremely vigilant.
International Standard Setting Bodies have also identified the potential ML/TF risks that could rise
from digital assets and they have been prompt in providing necessary guidance. As far back as
2015, the FATF identified certain key risks associated with Crypto Assets, including ML/TF, cross
border nature of operating systems and non-face to face client relationships which facilitates
anonymity.
In October 2018, the FATF, recognising the need to adequately mitigate the money laundering
and terrorism financing (ML/TF) risks associated with virtual asset activities, adopted, changes to
the FATF Recommendations to clarify how the Recommendations apply in the case of financial
activities involving virtual assets.
The FATF recommended countries to ensure that virtual asset service providers are regulated
for AML/CFT purposes, and licensed or registered and subject to effective systems for
monitoring and ensuring compliance with the relevant measures called for in the FATF
Recommendations.
More recently, in February 2019, the FATF announced that it is setting out more detailed
implementation requirements for effective regulation and supervision/monitoring of virtual asset
services providers which are expected to be adopted at the June 2019 Plenary of the FATF.
As the FATF Recommendations are globally accepted standards, it is very likely that, when
establishing the regulatory framework for digital assets, countries will adhere to these standards.
5. The experience of Mauritius in regulating Digital Assets - Development of regulatory
frameworks in line with international standards
Allow me to share the experience of Mauritius in regulating Digital Assets.
Last year, the Government of Mauritius took the initiative of setting up a Regulatory Committee on
FinTech and Innovation-Driven Financial Services chaired by Lord Desai and comprising
amongst others Loretta Joseph, Rajesh Ramloll S.C., Deputy Solicitor General at the Attorney
General's Office, Mauritius, the Chief Executive of the Financial Services Commission, other
eminent experts from in fintech regulation, blockchain as well as artificial intelligence industry and
myself. The Regulatory Committee was tasked to advise on the development of a regulatory
framework for fintech in Mauritius.
The Regulatory Committee identified priority areas in the fintech space to be considered for
regulation in Mauritius and recommended the approach to be adopted in regulating this emerging
sector of activities.
Further to the report of the Regulatory Committee, the Financial Services Commission,
Mauritius, which is the integrated regulator for the non-bank financial services sector and global
business in Mauritius, was identified as the most appropriate authority in Mauritius to promote the
regulatory framework for digital assets in Mauritius.
In September 2018, the Financial Services Commission issued Guidance Note on the
recognition of digital assets as an asset-class for investment by sophisticated and expert
investors.
Subsequently, on 05 November 2018, the Financial Services Commission issued a Consultation
Paper seeking feedback from stakeholders and the public on the proposed regulatory framework
for the Custodian Services (Digital Asset) Licence, which allows its holder to provide custody
services for Digital Assets.
The Consultation Paper has now been translated in a set of Rules which became effective as
from 01 March 2019, thereby positioning the Mauritius IFC as the first jurisdiction globally to offer
a regulated landscape for the custody of Digital Assets.
The Financial Services Commission has ensured that the distinct regulatory frameworks are in
line with international standards set by institutions like the Organisation for Economic
Cooperation and Development and the FATF.
Mauritius has participated fully in discussions at the level of the OECD on the governance and
regulation of Digital Financial Assets and the regulatory framework for this activity segment has
been developed in reference to these international consultations and the FATF
Recommendations have been fully considered in the regulatory approach taken by Mauritius to
regulate the custody of digital assets as a business activity.
As technology is a constantly evolving affair, we need to be at the forefront of the latest
development. This requires specialized skillsets which might not be available in all regulatory
bodies, thereby heightening the need for continued upskilling and capacity building.
6. Cross-border regulation
With the globalisation of financial services, collaboration has always been a requirement for
financial services regulators across the globe. The need for cross border cooperation between
financial services regulators is becoming even more crucial in relation to fintech.
Adherence to a common set of standards will foster standardization of the regulation across
countries and facilitate cross-border regulation of digital assets.
Obviously, cross border regulation implies cooperation and collaboration between regulators.
It is common practice for financial services regulators to sign Memorandum of Understanding
(MoU) with their counterparts for cooperation and exchange of information in the field of
conventional financial services.
These MoU may now have to be extended to collaboration in Fintech and financial innovation.
It may be foreseen that such collaboration will improve the cross-border regulation of fintech and
digital assets through:
a. Harmonised/Equivalent fintech regulatory frameworks across jurisdictions
which is an effective tool against regulatory arbitrage and will enable licensed
fintech business to have access to other markets;
b. Bridging the expertise gap between jurisdictions for efficient framework
development; and
c. Capacity building and knowledge sharing in the field of fintech supervision for
financial services regulators.
Concluding remarks
The launch, in January 2019, of the Global Financial Innovation Network aims at acting as a
network of regulators to promote information and knowledge sharing on emerging innovation
trends as well as promoting joint policy work and regulatory trials by enhancing collaboration
between regulators on key policy questions with the view to support the work of standard setting
bodies, amongst others.
All of us in this room who have a keen interest in promoting financial innovation should
collaborate and support this initiative in the hope that a standardized and agreed sets of
principles and practices for fintech and digital assets may unfold soon for the benefit of the
market participants and regulators alike.
Summits, similar to this one, acts as incubators for sharing our thoughts and vision for this
innovative sector. I am confident that this Summit will foster cooperation and collaboration
between regulators, investors and international organisations. I wish us all success in this area.
1
GFIN has been established by an international group of financial regulators and related organizations is an
indication of the willingness of the global community to promote financial innovation in an efficient and orderly
manner