FSC Issues Guidance Notes On Stablecoins - Key Developments For Industry Participants

The Financial Services Commission ("FSC") has issued its guidance notes on stablecoins (the "Guidance Notes"), three years after the publication of draft guidance notes for public consultation in July 2023 (the "2023 Draft Notes"). The Guidance Notes represent a significant strengthening of the regulatory regime for stablecoins in Mauritius, reflecting the jurisdiction’s ambition to meet international benchmarks.

Background

Stablecoins are virtual assets that aim to maintain a stable value relative to a specified asset, or a pool or basket of assets. The Guidance Notes distinguishes two categories of stablecoins:

1. Asset-linked stablecoins. These purport to link the stablecoin to physical or financial assets to maintain a stable value relative to the referenced asset(s). Some arrangements may also provide, directly or indirectly, yield, interest, or other remuneration to holders.
2. Algorithmic stablecoins. These are generally unbacked virtual assets that attempt to maintain a stable value through protocols that increase or decrease supply in response to changes in demand.

Key changes at a glance

• Permitted models are narrower. Algorithmic and yield-bearing stablecoins are outside the permissible licensing framework.
• Reserve assets are constrained. Reserves must consist of eligible traditional assets and cannot be pledged, re-hypothecated, or re-used except to generate liquidity for reasonable redemption expectations.
• Redemptions are time-bound. Issuers must redeem all stablecoins at par value within five days of receiving a request.
• Bank of Mauritius involvement is formalised. Certain payment instruments and fiat-pegged stablecoins require a Bank of Mauritius licence or no-objection alongside FSC licensing.
• Financial safeguards are more prescriptive. The framework inter alia, specifies the types of eligible liquid assets and establishes minimum capital requirements.
• Operational expectations have risen. Participants face enhanced AML/CFT, cybersecurity, governance, continuity, valuation, audit, and incident-reporting obligations aligned with international standards.

What has changed?

• Algorithmic and yield-bearing stablecoins are prohibited. The 2023 Draft Notes merely advised investors against dealing with algorithmic stablecoins. The FSC has now taken a definitive position: it will not consider applications for the issuance, distribution, or facilitation of algorithmic or yield-bearing stablecoins in or from Mauritius. Any stablecoin model that relies on algorithmic mechanisms to maintain its peg, or that offers returns to holders, falls outside the permissible licensing framework.
• Virtual assets are no longer eligible as reserve assets. The reserves backing a stablecoin must now consist exclusively of traditional assets such as cash, securities, or bank deposits. Virtual assets are expressly excluded. Furthermore, any stablecoin whose value is referenced to another virtual asset will not be recognised as a "stablecoin" under the Guidance Notes.
• Mandatory redemption at par value within five days. Under the 2023 Draft Notes, issuers had discretion over whether to meet redemption requests on demand or subject to a time lag. The issued Guidance Notes remove this flexibility. Issuers must now honour all redemption requests at par value within five days of receipt.
• Dual regulatory oversight with the Bank of Mauritius. The revised framework formally introduces the Bank of Mauritius into the regulatory framework. Any person offering a stablecoin as a payment instrument will require a licence from the central bank under the National Payment Systems Act 2018. Additionally, any stablecoin issued in or from Mauritius and pegged to a fiat currency (including the Mauritian Rupee) will require a no-objection from the Bank of Mauritius, in addition to FSC licensing. The Guidance Notes also require a no-objection for Payment Intermediary Services licensees conducting business exclusively outside Mauritius if they intend to use stablecoins pegged to fiat as a payment instrument. 
• Prescribed composition of liquid assets. The requirement to hold liquid assets is no longer open-ended. The Guidance Notes now specify that eligible liquid assets comprise cash and cash equivalents, Bank of Mauritius securities, Government of Mauritius securities, high-quality central bank securities, and bank deposits.
• Segregation and regular independent valuation of reserves. Reserve assets must be held in distinct accounts, segregated from the issuer's own funds, and protected against claims of a custodian's creditors. Daily marked-to-market valuations are required, with independent attestation on a monthly basis and a full audit annually. It is to be noted that reserve assets may not be pledged, re-hypothecated, or re-used except to generate liquidity for meeting reasonable expectations of requests to redeem stablecoins.
• Enhanced compliance obligations. All participants in the stablecoin ecosystem including issuers, custodians, and virtual asset service providers, are now subject to detailed anti-money laundering, cybersecurity, governance, and business continuity requirements. Material incidents, including cyber events, operational disruptions, and de-pegging events, must be reported to the FSC without delay.
• Incorporation of international standards. The Guidance Notes are accompanied by a new annexure that incorporates applicable standards from the International Organization of Securities Commissions, the Financial Stability Board, and the Basel Committee on Banking Supervision. These standards now form an integral part of the regulatory framework.

What should you do?

Industry participants involved or seeking to participate in stablecoin arrangements in Mauritius ( whether as issuers, custodians, or service providers) should consider the following as a matter of priority:

• Assess your stablecoin model. Determine whether it remains within the permitted categories. Algorithmic, yield-bearing, and virtual-asset-backed models are no longer permissible.
• Review reserve asset composition. Confirm that reserves consist of eligible traditional assets and are appropriately segregated.
• Evaluate redemption procedures. Ensure your operations can support par-value redemptions within the five-day timeframe.
• Clarify your regulatory position. Determine whether a no-objection or licence from the Bank of Mauritius is now required in addition to FSC licensing.
• Strengthen compliance frameworks. Review governance, cybersecurity, AML/CFT, and business continuity arrangements against the enhanced requirements.