Public Statement
IMF / World Bank FSAP Report gives boost to Financial Sector development in Mauritius.
The IMF/World Bank FSAP Mission - which completed its assessment of the Mauritius financial sector at the beginning of the year - praised the Government of Mauritius' reform programme. The report of the Mission was made public last week at a Seminar held by the Ministry of Financial Services to disseminate the findings of the report to the public and to private sector financial institutions.
“Overall, the Mauritian financial sector is currently in good health, and the short-term stability risks are modest” the Report concludes. The Report went on to highlight the relatively large and well-developed domestic financial system and the growing offshore sector. Importantly, the Report noted a high level of compliance with internationally accepted norms and best practices.
The Report gives support to the Government’s programme to diversify the financial sector. The Government of Mauritius invited the IMF/World Bank to undertake the FSAP review at its first opportunity. The objective was to demonstrate the significance attached to transparency and to seek guidance in respect of the reform measures that are being implemented currently.
Sectoral Assessment
Reforms pertaining to the non-banking financial sector were initiated two years ago - when the regulation and supervision of various non-banking financial businesses were brought under the sole regulatory ambit of the Financial Services Commission. Since then, the FSC has implemented a number of reforms concerning the development, regulation and supervision of the non-banking financial sector. These reflect the recommendations proposed by the Report.
With regards to the specific sub-sectors of the non-banking financial sector, the Report commends the domestic insurance industry which it says is “well developed". It also states that "the large and medium sized companies are efficient and financially strong. Despite the high level of concentration, the insurance industry appears competitive, efficient, and reasonably profitable”. The Report recommends the promotion of further consolidation in the industry - to ensure sound competition and greater safety by raising the level of minimum capital and introducing risk-based capital requirements.
The Report identified a sophisticated settlement and payment system in place in Mauritius but considers the financial and capital markets to be relatively underdeveloped. It is recommended that the authorities address a number of issues identified in the Treasury Bill auction process and pursue efforts to stimulate more efficient money and foreign exchange markets. The Report also recommends the harmonisation of tax treatment of interest income on financial instruments as a means to develop the longer-term government and corporate bond markets.
As far as the pension sector is concerned, the Report states that the multi-pillar pension system in Mauritius is well balanced and that the National Pension Fund is well run by the standards of most developing countries. The Report views the occupational pension funds as generally sound with most pension schemes appearing to be well managed with diversified assets, good investment returns and low operating costs.
Concerning the Global Business sector, the Report says that the sector does not represent a systemic risk for the domestic economy. However, it naturally gives rise to reputational risks associated with money laundering and terrorist financing. The Report recognises that the authorities in Mauritius have taken steps to mitigate those risks by the vigorous legislative and institutional AML/CFT framework put in place over the year.
Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT)
The Report states that the legal and institutional framework on AML/CFT in Mauritius is broadly in line with the FATF 40+8 Recommendations and that the Mauritian authorities have demonstrated strong political will and commitment to meeting international standards. It is noted that significant progress has been made over the past years in establishing a comprehensive AML/CFT regime. The prompt action of the authorities in addressing certain deficiencies is also noted in the Report. It is recommended that further work be undertaken to improve the coordination of law enforcement efforts and to expand the scope and focus of AML/CFT reviews during on-site inspections. To this end, the FSC was proactive in issuing Guidance Notes for certain regulated businesses, namely Insurance Companies, Investment Businesses and Management Companies.
Financial Sector Regulation & Supervision
The Report states that the Government has adopted a prudent and phased approach to integrated regulation and supervision of the financial sector.
The FSC has begun to implement a risk-assessment approach to the regulation of all financial service providers under its remit - which approach integrates and simplifies different models adopted in the past. The new approach seeks to identify and focus regulatory attention on institutions and activities that are likely to pose greatest risk to market well-being and confidence; and to act upon them in an integrated manner so as to avoid any spill over effects in the event of failure or collapse of any firm..
The FSC has already initiated a number of projects relating to the implementation of sound prudential and market conduct standards and policies for the various components of the non-banking financial services sector.
Concerning specific sector regulation, the Report commends the work undertaken so far by the FSC in the insurance sector since its creation two years ago. It states that the regulatory framework in place has many strong elements, including reliance on solvency monitoring, prudent asset diversification, and international accounting and actuarial standards. However, it also states that further strengthening is required especially in relation to risk management. The new draft insurance legislation will address these deficiencies. The Report recommends the enactment of comprehensive legislation on occupational pensions - which will enhance the security of retirement benefits and fill existing gaps relating to safe custody of assets and adequate asset diversification. The FSC is finalising draft pensions legislation. Concerning the securities industry, the Report considers that regulation and supervision of the sector should be strengthened. The legislation under preparation currently addresses the matters highlighted by the Report, including governing legislation for Collective Investment Schemes.
The full Financial Sector Assessment report may be downloaded by clicking
Financial Services Commission
24 September 2003