The Supervisory Framework

The FSC regularly reinforces its supervisory framework in response to international challenges in order to promote robust regulation of its licensees, safeguard public interest, foster investors' confidence and ensure more effective enforcement.

The over-arching aims of the FSC's supervisory framework include:

• ensuring that licensed entities are compliant with its legislative framework and are financially sound;
• identifying licensees engaged in activities that are unlawful or contrary to public interest for appropriate enforcement action;
• fostering public and investor confidence in the financial system; and
• maintaining the good repute of Mauritius as an International Financial Centre.

The FSC's supervisory framework is based on prudential supervision as well as the conduct of business. While prudential supervision ensures the safety and soundness of institutions with a focus on risk, capital and liquidity, regulation of conduct focuses on how consumers are impacted by the actions of financial institutions. As an integrated regulator, the FSC delivers by maintaining a stable equilibrium of conduct and prudential supervision.

Prudential supervision
The purpose of prudential supervision is to ensure the financial soundness of financial undertakings and to contribute to the stability of the financial sector. There are two ways in which prudential supervision is carried out: at micro level and at macro level.

At micro level, individual firms must prudentially manage their own risks, and financial supervisors must prudently manage the risks posed by the financial system to society. Macro-prudential supervision is the oversight that focuses on the stability of a financial system as a whole, rather than on its components. The need for macro-prudential regulation of the system arises because the actions of individual companies acting prudently within guidelines may collectively result in the instability of a financial system.

Macro-prudential supervision in conjunction with micro-prudential supervision are sufficient working instruments for stemming systemic crisis through early detection of vulnerabilities and threats with appropriate policy responses to pre-empt the occurrence of systemic crisis.

Regulation of conduct
Market conduct regulation ensures that markets function well and continue to provide the services expected of these infrastructures in an orderly manner. The focus is on protecting customers who buy financial products or otherwise entrust funds to financial institutions. Such regulation provides consumer protection by addressing the unequal position of financial institutions relative to their customers. The most vulnerable customers are retail clients who often lack the sophistication and information necessary to protect themselves from fraud, market abuse or ill-informed advice and rely on financial institutions and their representatives to look after their interests.

Apart from protecting consumers, the market conduct regulator is required to promote confidence in the financial system and ensure financial services institutions and markets function well and to high ethical and professional standards.

The FSC carries out pre-surveillance at the stage of licensing to ensure only qualified licensees operate with the Mauritius IFC. Applicants have to demonstrate financial soundness, governance and potential for good market conduct before being licensed. Once licensed, licensees come under the continuous surveillance and monitoring by the FSC and are expected to comply with the prevailing legal framework at all times and to meet all the licensing conditions and licensing requirements. Constant monitoring and surveillance entails ensuring the licensees comply with legislations at all times which is verified through off-site supervision and on-site inspections.

In order to ensure appropriate allocation of limited supervisory resources in accordance with the level of risk, the FSC used a Risk-Based Supervision (RBS) Framework. The relevancy of the framework is regularly assessed and over the years, the RBS Framework has evolved to reflect most of the major developments in the market. The following parameters are used to measure the riskiness posed to the system by the licensee:

• Corporate Governance;
• Prudential Procedures;
• Financial performance;
• Risk-to-Objectives Matrix;
• Risk Profile;
• System; and
• Market Conduct Procedures.

The risk score based of the parameters assists in planning and scheduling on-site inspections on the one hand and focusing off-site monitoring resources towards licensees with a higher risk profile on the other hand.