Financial services: Mauritius at the starting block for moving up the value chain

Mauritius has all the right ingredients and DNA to position itself as an International Financial Centre (IFC) of substance. The latter was far too commonly used that we tend to lose track of how Mauritius can jump-start its IFC amid the dawn of a new era with the erosion of DTAA-driven competitive advantage.

Beyond the good governance, investor protection, well developed banking services and double-taxation avoidance treaties, Mauritius has an edge over many African /regional peers as it is white listed OECD, highly regula-ted and adopted first world regulatory framework, FATCA, CRS and MiFID compliant as well as the Mauritius Stock Exchange being HMRC approved.

Mauritius has all the right legal and regulatory framework to offer value-added services to move up the value chain in the financial services sector. Mauritian Offshore Management Companies (OMCs) and financial services providers need to look beyond traditional avenues of growth, such as low value administration of companies under DTAA, and use its legal, banking and regulatory framework to capture business within the investment administration, wealth management and security brokerage.

Untapping the Mauritius advantage for a IFC of substance

Mauritius has several advantages that remain untapped. What was seen as an initial regulatory burden and compliance costs to financial services firms can be used for adding substance to the Mauritius International Financial Centre by leveraging on both inbound and outbound investments.

Some avenues for growth and value creation that can be explored are:

a)  listing of African funds and Indian loan notes and debentures on the Stock Exchange of Mauritius (SEM)

b)  showcasing the advantage for UK pension funds using such SEM-listed instruments for HRMC’s approved investment savings accounts, pension schemes and other vehicles.

c)  Tapping a vast market whereby financial firms from non-white listed OECD African have limited access to financial services and banking facilities in major financial centres such as London/ Geneva. Mauritius can become a platform to Africa by offering its banking, wealth management and brokerage services by connecting Africa to major markets. One such example is an investment broker providing a gateway to some African firms to use its investment platform to invest in Global stock markets, while the clients hold securities and cash accounts in Mauritius.

d)  Mauritius IFC operators should develop business and strategies to capitalize on the time zone advantage of Mauritius and mounting costs of Dubai and Singapore IFCs. There is significant value to be tapped by OMCs and financial services firms by providing enhanced services to their existing clients or offering outsourcing solutions to other firms/OMCs based in more expensive jurisdictions. Such enhanced services could include investment reporting, fund analytics, business intelligence information, financial data capture services, trade confirmations and settlement instructions processing. One example is how an investment firm leveraged its relationship with one of its clients to centralize the reporting of trades executed in Singapore, Japan and India. The time-zone advantage of Mauritius helped to provide managers based in London and US reports even before their mor-ning coffee.

e)  Government assistance should also be sought to encourage harmonization of licensing of securities and financial services firm within the SADC and PTA member countries. Similar to Europe, there should be a framework that would allow regulated financial services firms to operate in member countries through a system of “passport” whereby a wealth management firm in Mauritius can operate in Kenya when it is sponsored by a Kenyan firm.

f)   There is a niche market to be tapped, which is the management and administration of pension business. With rising operating costs in Malta, Gibraltar, Singapore and Dubai, Mauritius can compete for the business of expats-centric pension business, life insurance wrappers and Qualifying Recognised Overseas Pension Schemes (QROPS). The recent establishment of Mauritius IFC would help to converge efforts of diffe-rent parties – OMCs, Banks, Wealth managers, Fund administrators, Insurance companies and investment brokers – to offer a holistic offering to compete with IFCs with mounting costs of operations such as Dubai, Singapore, Gibraltar, Ireland and Luxemburg.

g)  Mauritius could position itself as a leading centre for the registration of “intellectual property”, “trademarks” and “patents” as the world becomes more knowledge based and the value of patents and IP is growing both in value and also as a percentage of company capitalization. Mauritius could use example of the UK’s Intellectual Property Office as UK is a hub for global companies which use the country as a home for their IP, patents and trademarks. Mauritius should provide appropriate legislations and reduce red tape similar to UK’s “Intellectual Property Act” which allow companies to manage online their intellectual property and reducing their overall costs. This step is important to encourage businesses, scholars and also regional businesses operating in volatile and uncertain environment to register and protect their IP in Mauritius. The protection of IP is key to attract entrepreneurs in the FinTech, WealthTech and cloud computing technologies.

The starting block

The scaling up of Mauritian financial services firm can only take place through an outward oriented strategy with a fresh view of the competitive landscape. Such a strategy should shift from DTAA-dependent to one being client-centric and value enhancing for its end clients and developing business partnership with other IFCs. This would also help in the transfer of knowledge and technology to Mauritian enterprises.

The sustainable growth path for the Mauritius IFC sector could only be achieved through investment in Human Capital (the software) and technology (the hardware). In the new Internet era of cloud computing and software as a service, the “hardware” is accessible and affordable in such way that there is a level-playing field. However, the key remains the constant nurturing of talents and improving the human capital of Mauritian enterprises. Companies such as MCB and LUX* Resorts have demonstrated how ongoing focus on its most valuable human capital resource paved way for improved competiveness, coupled with higher growth and profitability than their respective peers.

The future remains bright for entrepreneurs and business leaders ready to develop a new springboard of growth which is built on their past successes. Collaboration among different actors of the financial services scene will be key to be able to offer a comprehensive solution to propel Mauritius up the value chain and to become a reputable and competitive IFC at global level.

About LCF Securities Ltd.

LCF Securities Ltd., which is part of IBL Group, is the only re-gulated securities house in Mauritius that allows clients to trade in over 40 different currencies across more than 50 economies, access to over 200,000 mutual funds and ETFs, offering safekeeping facilities via AA-rated global custodian banks and also having the ability to settle to any custody bank across the world. LCF has over USD 500m of assets under custody and provides its services to its regulated partners with over USD7bn of assets under management. Beyond its traditional brokerage activities, LCF offers investment advisory, portfolio management and sponsor broker services.

Rajiv Lutchmiah

Co-founder and CEO

LCF Securities Ltd