Fintechs, cryptocurrency companies, and virtual asset ventures looking for a well-regulated, business-friendly environment are increasingly turning to Mauritius. The Virtual Asset and Initial Token Offering Services Act, 2021 (the VAITOS Act) and the associated licensing regulations are essential to this. This article describes the requirements for VAITOS/ITO license, the types of services that are permitted, the role that stablecoins play in the system, and some pertinent currency considerations for those involved in cross-border token or asset transactions, such as the offshore yuan (CNH).
#VAITOS/ITO Licencing: What is it?
The Mauritian Financial Services Commission (FSC) created the VAITOS legislative framework to oversee Initial Token Offering (ITO) issuers and Virtual Asset Service Providers (VASPs). It became operative on February 7, 2022.
#According to the VAITOS Act:
- Fiat currencies and securities already covered by the Securities Act are not considered virtual assets (VAs), which are digital representations of value that can be sold, transferred, used for payment, or invested.
- An initial coin offering (ITO) is when an issuer offers virtual tokens to the public in exchange for fiat or other virtual assets.
Through licenses, regulations, guidelines, and oversight, the FSC controls them.
#Important Conditions for VASP and ITO Licenses
The following are the primary prerequisites if your company (or project) wishes to operate in Mauritius under the ITO/VASP framework:
#Corporate structure & incorporation
The company must be formed in Mauritius, have a physical presence with an office and senior management in Mauritius, and conduct business management and direction from Mauritius.
#People who are suitable and appropriate
The "fit and proper" requirements—honesty, competency, lack of criminal histories, etc.—must be met by directors, controllers, beneficial owners, and senior executives.
#Financial resources and capital
Depending on the kind of license, the minimum unimpaired capital may be higher for custodians, marketplaces, or broker-dealers.Expectations for working capital and the need for solvency under pressure.
#Controls, risk management, and governance
Must uphold cybersecurity, operational risk, conflict of interest, AML/CFT (anti-money laundering, fighting financing of terrorism), and other policies and procedures.
#Disclosures and the White Paper
According to the Act's Fourth Schedule, ITO issuers are required to publish a white paper with complete and accurate disclosure that is available both during the offer period and for at least 15 days following. Disclosure is required if there are significant changes during the offer period.
#Timing, application procedure, and regulatory fees
The application is sent to the FSC with the required fees; depending on its completeness, processing could take several months. Submission of comprehensive plans, audited statements, etc. is required by FSC regulations.
#Monitoring and continued adherence
The entity must adhere to continuous reporting, audits, capital norms, senior executive control, and other requirements after receiving a license. Periodic inspections as well
#Which Services Are Permitted by an ITO or VASP License?
A variety of authorized activities are permitted in Mauritius, depending on the type of license granted. Among the major services that could be regulated under VAITOS or ITO are
Exchanges: Either between various virtual assets or between virtual assets and fiat currencies. ("Class M")
Wallet/transfer services: Services that facilitate the holding, management, and transfer of virtual assets. ("Class O" and "Class R")
Custody services: administration and storage of virtual assets (also known as "Class R")
Advisory services: include organizing token offerings, investing in virtual assets, and giving advice on ITOs. ("Class I")
Marketplaces and Exchanges: Enabling the matching of virtual asset buyers and sellers, whether they are central or decentralized. ("Class S" )
Initial Token Offering (ITO) Issuers: Entities issuing tokens to the public in accordance with the ITO regime such as stablecoins, tokenized securities, digital currencies tied to fiat currencies (Dollar, Yuan, Yen, etc.).
#Stablecoins under the ITO / VAITOS Regime
The topic of whether and under what circumstances stablecoins may be issued under this licensing framework is one of the more intricate and developing ones.
- To provide clarification on regulatory policy in this area, the FSC made its Guidance Notes on Stablecoins (draft) available to the public.
- According to those guidelines, it is illegal to issue or offer services pertaining to stablecoins in or out of Mauritius without first receiving the necessary license, permission, and/or registration from the FSC under VAITOS.
- This implies that projects wishing to develop, issue, or run stablecoins must meet all requirements set forth in the draft Guidance and VAITOS on licensing, capital, disclosure, risk management, governance, and AML/CFT, among other things.
Thus, issuing your own stablecoins under VAITOS/ITO is feasible, but only if you adhere to all legal, regulatory, governance, transparency, and supervisory standards set forth by the FSC.
#In actuality, that entails:
- sufficient reserves to support the stablecoin (or in any other way guarantee redemption and stabilization)
- audits and disclosures, such as how reserve assets are evaluated, kept, and redeemed, among other things.
- AML/KYC for users, transparent governance, supervision, and consumer protection and risk disclosure in the white paper or prospectus, among other things.
#The Significance of Offshore Yuan (CNH)
Understanding currency regimes is particularly important for organizing token or stablecoin initiatives, cross-border payments, or foreign exchange exposure. The Chinese Yuan, particularly its offshore form, the CNH, is one pertinent example.
- The Chinese yuan that is traded on the mainland Chinese onshore market is referred to as CNY. It is subject to capital limits and more stringent regulatory oversight by the People's Bank of China (PBOC).
- The offshore yuan, or CNH, is Chinese money that is traded outside of mainland China (Hong Kong, Singapore, etc.) where it is subject to market forces rather than stringent internal capital controls and is hence more easily convertible.
#Why is this important for ITO, token, and stablecoin work?
- Knowing if a foreign currency, like CNH, is freely convertible is important for legal, operational, and risk planning when a stablecoin, token, or ITO is denominated in or tied to it.
- Freely convertible currencies enable market pricing without regulatory obstacles, ease value transfer, and cross-border settlement.
- In order to avoid having to cope with stringent onshore capital control restrictions, tokenized goods, settlements, or trade offerings that have exposure to China or Chinese trading partners can benefit from using or referencing CNH.
#Useful Actions for Companies: Equilex's Suggestions
Here is a high-level route for anyone thinking about establishing an ITO, producing stablecoins, or entering Mauritius under VAITOS:
- Pre-Evaluation and Legal Framework: Describe your stablecoin or token model. Is it a fiat-pegged stablecoin, investment, or utility? What are the rights of token holders? Is it going to be redeemable? These specify if you are subject to VAITOS or if you also need to abide with the Securities Act.
- Employ Local Supervisors and Develop Substance: Establish a company in Mauritius. Employ a senior executive or executives who live in Mauritius. Establish local government, a board, and a physical office.
- Technical design, token (or stablecoin) economics, risk factors, reserve backing, redemption, redemption risk, and governance are all included in the draft full disclosures or white paper.
- Capital, Audit, and Risk Management: Make sure you have enough cash, strong reserve management, independent audits, cybersecurity, AML/KYC, and operational risk management, among other things.
- File Application with FSC: Complete the application in accordance with the VAITOS Act and include all necessary paperwork. Be prepared for questions, reviews, and perhaps iterations. Timelines could differ.
- Continuous Reporting & Regulatory Compliance: Maintain reserves, audits, disclosures, and operational management after obtaining a license.
- Currency Strategy: Make sure you comprehend currency convertibility, settlement risk, cross-border regulation, and how exchanges or counterparties function in those currencies if your product makes reference to foreign currencies (such as stablecoins tethered to USD, CNH, EUR, etc.).
#The Allure of Mauritius and Some of the Dangers
#Advantages
- VAITOS is a clear legal framework for token offers and virtual assets.
- FSC is widely accepted, and Mauritius has worked to conform to international norms (FATF, AML/CFT).
- Flexibility for different VASP/ITO issuer classes.
- Costs are reasonably competitive, the business environment is favorable, and the legal and regulatory framework is stable.
#Dangers and Things to Be Aware of:
- Guidelines for stablecoins are still being drafted and may change.
- Regulatory risk: Depending on the project's risk profile, FSC may impose extra requirements.
- Reserve management, redemption risk, cybersecurity, and market risk are operational risks.
- Currency risk, particularly if cross-border or foreign currency components are involved.
#In conclusion
If all operational and regulatory requirements are satisfied, Mauritius' VAITOS/ITO license system provides a viable route for companies under Equilex's advice to lawfully issue virtual tokens, conduct ITOs, and, in some cases, issue stablecoins. At the same time, structuring, risk, and convertibility all greatly benefit from a grasp of foreign exchange regimes such as CNH versus CNY.
We can assist you in determining the license needs, compliance obligations, and ideal structure to maximize legal security, investor confidence, and operational efficiency if you are developing a token project, issuing stablecoins, or dealing with foreign currency risk.