MAURITIUS Law and Practice Contributed by: Valerie Bisasur, Jean-Vincent Dacruz and Shane Mungur, BLC Robert & Associates
7. Prudential Regime 7.1 Capital, Liquidity and Related Risk Control Requirements In Mauritius, the transition to Basel III (introduced in 2014) has been a gradual process. Prior to its implementation, banks had to maintain a 10% minimum capital adequacy ratio, consisting of 5% each in Tier 1 and Tier 2 capital. The BoM implemented Basel III in June 2014 through publication of the Guideline on the scope of application of Basel III and eligible capital. When the Guideline was issued, banks faced minimal disruption, as 90% of the banks’ capital base was already Tier 1. Alongside capi - tal adequacy requirements, the BoM introduced a capital conservation buffer, starting at 0.625% in 2017 and increasing annually until reaching 2.5% by 2020. To control risk in certain high-growth economic sectors, the BoM replaced the Basel III coun - ter-cyclical capital buffer with macro-prudential measures, including additional portfolio provi - sions, higher risk weights, debt-to-income lim - its and loan-to-value ratios. Since July 2018, the loan-to-value ratio requirement has been removed. Under Section 100 of the Banking Act, all banks are required to adhere to the BoM’s Basel III Guidelines, with the most recent revision in June 2021. Risk Management Rules In Mauritius, the board of directors holds ulti - mate responsibility for a bank’s soundness, overseeing its capital adequacy, risk manage - ment, liquidity and internal controls. Section 18(6) of the Banking Act mandates that boards establish committees for effective governance,
including a risk management committee with a publicly accessible mandate. The risk committee advises the board on risk appetite, oversees its framework’s implementa - tion and reports on the institution’s risk culture. The BoM considers robust risk management crucial to corporate governance, addressing potential exposures from direct investments or affiliates. To manage risks, banks must estab - lish a board-approved risk appetite framework, aligning with the institution’s strategic goals and setting benchmarks for acceptable risk limits. All corporate policies should support this forward- looking framework, which is critical to the bank’s risk tolerance and long-term objectives. With the exception of the CEO, the committee members should be non-executive with famili - arity in bank risk management. The committee should have a clear mandate from the board. The board chairperson can be part of the committee, but only as its chairperson. The chairperson of the committee should ideally be an independ - ent director, or, in the case of a subsidiary of a foreign bank, a non-executive director. The risk committee’s duties include: • identifying major risks; • appointing a Chief Risk Officer (CRO) inde - pendent from revenue-generating operations; and • ensuring the CRO reports regularly to senior management and the board. The committee also reviews risk exposure reports and makes recommendations on risk issues to the board.
362 CHAMBERS.COM
Powered by FlippingBook