1. Financial Services Commission Mauritius w w w. f s c m a u r i t i u s. o r g Making the Decision to Change Regulatory Structure: Small Country Considerations Mauritius: The Structural Decision Process in Retrospect By Dr Milan J.N. Meetarbhan Chief Executive, FSC World Bank Conference, 5 June 2006

2. Financial Services Commission Mauritius www.fscmauritius.org History of Financial Sector Regulation Rationale for Integrated Regulation Establishment of a Single Regulator Guiding Principles of Regulation Benefits & Difficulties of Integration Challenges Ahead A New Regulatory Framework Structure of Presentation

3. Financial Services Commission Mauritius www.fscmauritius.org Current Status of Financial Sector Regulation Banking business regulated by the Central Bank (Bank of Mauritius) since 1966 Non-banking business (includes Global Business sector) regulated by a single regulator (Financial Services Commission) since 2001

4. Financial Services Commission Mauritius www.fscmauritius.org Distinct & separate specialist regulatory agencies: Insurance business regulated by Insurance Division of the Ministry of Finance Securities market regulated by the Stock Exchange Commission since 1989. The stock exchange is operated & managed by a private company. The non-bank offshore business regulated by the Mauritius Offshore Business Activities Authority since 1992 Certain non-bank deposit taking entities (e.g. leasing) regulated by the Central Bank Non-Bank Financial Regulation Prior to 2001

5. Financial Services Commission Mauritius www.fscmauritius.org Driving Factors for Integration (1)  Concerted approach to developing financial services sector as part of economic diversification (outward looking strategy for a small island economy)  Facilitate process of integration between offshore and domestic business  Fill supervisory gaps across a range of financial activities on offer in Mauritius

6. Financial Services Commission Mauritius www.fscmauritius.org Driving Factors for Integration (2)  Concerns about the efficiency of a fragmented regulatory system  Achieve economies of scale due to smallness of the financial sector – efficient, effective & harmonised use of limited resources (human & technical)  Better supervision of financial conglomerates - addressing systemic risk and credit risk concentration in the financial system

7. Financial Services Commission Mauritius www.fscmauritius.org Driving Factors for Integration (3)  Oversight of the whole NBFI industry (hitherto unregulated) to allow protection of investors’ and consumers’ interests  Harmonised & convergent approach in adhering to international trends and best practices  More focused strategy for promoting the financial services sector

8. Financial Services Commission Mauritius www.fscmauritius.org Establishment of a Single Regulator (1)  Establishment of a single regulator followed a number of consultations, committees, reports since 1994  Consultative Committee set up in 1997 to advise on a comprehensive & integrated strategy for the development of financial services The setting up of a Financial Services Authority was recommended to the Ministry of Finance in 1997 Debate about the internal governance of the proposed Authority

9. Financial Services Commission Mauritius www.fscmauritius.org Establishment of a Single Regulator (2) Steering Committee set up by Government in 2000 to recommend on new regulatory framework for the financial services sector: “A unified financial regulatory authority, covering both banking and non-banking activities, be established in a phased manner…”

10. Financial Services Commission Mauritius www.fscmauritius.org Establishment of a Single Regulator (3)  Financial Services Development Act 2001: setting up an integrated financial regulator Financial Services Commission Financial Services Promotion Agency Financial Services Consultative Council Segregation of regulation and promotion Recommendation of the Edward’s Report Regulatory functions of the 3 former specialist regulatory agencies were absorbed into the FSC Very broad statutory mandate for the FSC Regulatory oversight of the whole non-bank financial services

11. Financial Services Commission Mauritius www.fscmauritius.org Evolution of the FSC: 2001 - 2005  Nascent phase Building up the structure Governance addressed from 2 angles »Public & Internal governance of the FSC Building up the capacity (resources & infrastructure) Building up the normative framework Legislation & regulations »Establishing a regulatory framework for all entities that fall under the FSC’s ambit »Facilitating further integration of the domestic and global business sectors

12. Financial Services Commission Mauritius www.fscmauritius.org Evolution of the FSC: 2001 - 2005  Functioning of the FSC Organisation structure Industry grouping within the FSC maintained for a brief period to allow smooth transition Functional grouping (established in 2003) - Licensing, Surveillance & Policy/Research Directorates Clusters concept - optimal use of skills Competencies & skills building - in 3 years staff level more than doubled to reach 124 Sustaining international credibility – adherence to international norms, undergo FSAP assessment in 2002  Consolidation phase

13. Financial Services Commission Mauritius www.fscmauritius.org Guiding Principles of Regulation  Statutory mandate – very broad remit Prudential, market conduct, consumer protection, reputation & industry development  Progressive & adaptable In line with the specific nature & level of development of NBFI industry in Mauritius (high market concentrated with few major players)  Best practice International dimension provided by Global Business  Consultative approach Concerted efforts in collaboration with stakeholders (industry operators, other agencies)

14. Financial Services Commission Mauritius www.fscmauritius.org Benefits of Integration (1)  Develop supervisory clout – synergy of regulatory expertise across all sectors, common principles of supervision  Larger organisation – more effective and optimum use of skills & competencies, attract higher calibre staff  Rationalised & harmonised procedures for licensing & regulating NBFIs, avoidance of duplication

15. Financial Services Commission Mauritius www.fscmauritius.org Benefits of Integration (2)  Harmonised collaboration with international standard- setting bodies for effective adherence to international norms AML/CFT framework driven by exposure of Global Business sector – application of framework to other domestic financial services  Greater benefit to insurance sector – regulation has been strengthened. Other NBFIs have benefited from the risk based supervision  Consolidation of corporate governance, risk management & internal control systems

16. Financial Services Commission Mauritius www.fscmauritius.org Difficulties of Integration  Teething problems resulting from implementation of new legislation – need for clarity & certainty  Change in regulatory structure: shift from sectoral to functional approach  Managing transition process by FSC: gaps in regulation, human resources, infrastructure, etc.

17. Financial Services Commission Mauritius www.fscmauritius.org Challenges Ahead for the Financial Services Sector  The financial services sector to become a more dynamic & important component of the Mauritian economy  Enhance international competitiveness of Mauritius as an IFC  Maintain & consolidate global reputation of Mauritius  Development – cf. Promotion  Promoting investment culture in Mauritius

18. Financial Services Commission Mauritius www.fscmauritius.org Challenges for the FSC  Currently at a turning point: focus on business development in a sound and clean environment  Facilitate product/service development  Refine regulatory framework  Uplift stakeholder service delivery  Clear & coherent framework for communication & cooperation  Formulating a new investor & consumer framework  Regulating competition  Building a competent organisation

19. Financial Services Commission Mauritius www.fscmauritius.org A New Approach to Integrated Regulation  Guiding Principles Balanced regulation Business friendly regulation Progressive regulation Efficient regulation Risk-based regulation

20. Financial Services Commission Mauritius w w w. f s c m a u r i t i u s. o r g Thank you for your kind attention 4 th Floor, Harbour Front Building John Kennedy Street, Port Louis Tel: (230) 210 7000 – Fax: (230) 208 7172 E-mail: fscmauritius@intnet.mu