Crowdfunding : A New Legal Environment

The Financial Services (Crowdfunding) Rules 2021 (the ‘Rules’) came into operation on 4 September 2021 bringing a long-awaited legal framework to crowdfunding platforms in Mauritius. The Rules confirm the expected leap forward of the Mauritian financial services sector for the coming years. 

As per the Rules, a crowdfunding activity involves the solicitation of funds from investors for a specific investment purpose through an online portal or electronic platform. The investment authorised are unlisted shares, debentures or other equity-like instruments or revenue sharing in a business. An issuer is an entity seeking funding through the crowdfunding platform. An investor is the person providing funding to the issuer through the purchase of an investment in the issuer’s business on the crowdfunding platform. Investors can be of two types: expert investors or retail investors. The Rules impose an obligation on the crowdfunding operators to have appropriate agreements (such as contracts etc) between the parties involved in the transaction, that is, the investor, the issuer and the crowdfunding platform operator. 

The Rules further confirm the requirement to apply for a crowdfunding license in order to operate a crowdfunding platform. The application must be made in accordance with the Financial Services Act 2007. A crowdfunding operator must be a legal person incorporated in Mauritius, having a registered office and principle place of business in Mauritius. 

The minimum unimpaired stated capital of a crowdfunding operator shall be of MUR 2 million (or an equivalent in another currency) or a higher amount if determined by the Financial Services Commission (the ‘’Commission’’). Moreover, a crowdfunding operator shall maintain effective systems and controls to ensure that, over a 12-month period, a retail investor does not invest an amount exceeding MUR 350,000 on the crowdfunding platform. However, such investment limit does not apply to expert investors. An issuer cannot offer to raise an amount exceeding MUR 15 million on a crowdfunding platform over a 3-year period (or such other period approved by the Commission). Moreover, crowdfunding operators cannot allow a reporting issuer (as defined in the Mauritius Securities Act) to seek funding on its crowdfunding platform.

The management of the crowdfunding operator shall be composed of a minimum 3 directors, of which at least – (i) 30 per cent shall be independent directors; and (ii) one shall be resident in Mauritius. In addition to the governance requirements, a crowdfunding operator shall be required to employ adequate staffs in Mauritius who are fit and proper and have the appropriate competence, experience and proficiency to properly perform the functions of the crowdfunding platform.

Emphasis has been put on the information technology and cybersecurity of a crowdfunding operator with a requirement to have adequate measures in place ensuring: (a) that its information technology systems are resilient and not prone to failure; (b) protection of its information technology systems from damage, tampering, misuse or unauthorized access; and (c) the integrity of data forming part of, or being processed through, its information technology systems. These measures must be reviewed at least annually to ascertain their adequacy. 

The Rules additionally reflect the commitment of Mauritius to strengthen its AML/CFT procedures by imposing due diligence to be conducted by the crowdfunding operator over issuers and investors in accordance with the AML/CFT legislation and as per the Rules. Furthermore, the crowdfunding operator is required to disclose a list of information on its crowdfunding platform. Disclosure will include information such as the main risks of using the crowdfunding platform, the actual and expected failure rate of issuers who use the crowdfunding platform or key information about how the crowd operator services operate.

 

Any person who, immediately before the commencement of the Rules was operating a crowdfunding platform or a similar activity under a Regulatory Sandbox Licence granted under the Economic Development Board Act should, within 3 months of the commencement of the Rules, apply for a crowdfunding licence.

 

Important Note: This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.

 

Emmanuel Travailleur, Associate

Sameer K. Tegally, Partner