Stablecoin Regulation in Mauritius: A Complete FAQ Guide

Under Mauritius’s regulatory framework, stablecoins are defined by characteristics that ensure their stability and place them within the Virtual Asset and Initial Token Offering Services Act (VAITOS Act).

Virtual Asset Classification

Categorized as a virtual asset under the VAITOS Act, bringing them under a regulatory framework.

FSC Oversight

The Financial Services Commission (FSC) serves as the principal regulator, providing guidance on their issuance and operation.

Price Stability Goal

Engineered to minimize price volatility, distinguishing them from other volatile cryptocurrencies.

Reference Asset Peg

Achieve stability by pegging their value to assets like fiat currencies, commodities, or other financial instruments.

Defining a Virtual Asset: A virtual asset, in the context of Mauritian law, refers to any digital representation of value that can be digitally traded or transferred, and is capable of being used for payment or investment purposes. This definition excludes fiat currencies, which are legal tender, and traditional securities as defined by securities laws, ensuring a clear distinction for regulatory oversight.

1. Legal Classification

Stablecoins are designated as a distinct category of virtual asset under the VAITOS Act, subjecting them to a comprehensive regulatory framework.

2. Value Stability

Their fundamental characteristic is the design mechanism to maintain a consistent and predictable value, mitigating the price fluctuations common to other cryptocurrencies.

3. Reference Peg

This stability is achieved by ‘pegging’ their value to external, more stable assets such as the US Dollar, Euros, gold, or a basket of currencies and commodities.

4. FSC Oversight

The FSC provides guidance and regulatory directives concerning their issuance, trading, and operational requirements within Mauritius.

 

How are stablecoins distinguished under Mauritius law?

Asset-Linked

• Fiat or commodity backed
• Peg maintained by code
• Stability via reserves

Algorithmic

• Stability via supply rules
• Risk: reserve shortfall
• Risk: depegging cascade

The regulatory framework governing stablecoins in Mauritius involves several key authorities, each with distinct responsibilities to ensure compliance, stability, and integrity within the financial ecosystem. These entities collaborate to establish a strong and secure environment for virtual asset operations, encompassing aspects from licensing and supervision to anti-money laundering and data protection. The primary authorities include:

What is the Role of the Financial Services Commission (FSC)?

As the principal regulator under the VAITOS Act 2021, the FSC mandates licensing, supervision, and enforcement functions for Virtual Asset Service Providers (VASPs) and issuers of Initial Token Offerings (ITOs), which encompass stablecoin operations. The FSC sets prudential and conduct-of-business rules, aiming to protect investors, maintain market integrity, and prevent systemic risks. This involves assessment for license applications, compliance monitoring, and sanctions for regulatory breaches.

What is the Role of the Financial Intelligence Unit (FIU)?

The FIU is the central national agency responsible for receiving, analyzing, and disseminating suspicious transaction reports (STRs) to combat money laundering (AML) and terrorist financing (CFT) activities. For stablecoins, the FIU ensures VASPs comply with international standards set by the Financial Action Task Force (FATF), including the “Travel Rule,” which mandates sharing originator and beneficiary information for transactions above a certain threshold. The FIU is critical in preventing illicit use of stablecoins and safeguarding the financial system.

What is the Role of the Bank of Mauritius (BoM)?

While not directly regulating stablecoins as the FSC, the BoM exerts indirect influence, particularly concerning financial stability and payment systems. The BoM oversees the national payment infrastructure, which stablecoins may interact with. It also plays a role in setting cybersecurity and operational resilience standards for financial infrastructure, extending to platforms facilitating stablecoin transactions. The BoM collaborates with the FSC on financial sector stability and innovative financial products.

What is the Role of the Data Protection Office (DPO)?

The DPO is responsible for enforcing the Data Protection Act 2017, ensuring lawful processing and secure transfer of personal data. For stablecoin issuers and VASPs, this implies adherence to data privacy principles when collecting, storing, and utilizing customer information, particularly during Know Your Customer (KYC) and AML processes. The DPO’s oversight is critical in maintaining consumer trust and preventing data breaches within the digital asset ecosystem, ensuring compliance with global data protection practices.

 

Who Needs a License for Stablecoin Operations?

All stablecoin entities and Virtual Asset Service Providers (VASPs) in Mauritius must secure a license from the FSC.

This mandate ensures stringent regulatory oversight, fosters investor confidence, and maintains financial ecosystem integrity. Operating without the requisite FSC license is strictly prohibited and carries significant legal and financial penalties, including fines and imprisonment.

 

Which Entities Require Licensing?

Are Stablecoin Issuers and Operators Licensed?

Any entity that issues or operates stablecoins in Mauritius, regardless of the underlying technology or pegging mechanism, is required to obtain appropriate licensing from the FSC. This encompasses the lifecycle of stablecoin management, from creation to redemption.

Are Issuers of ITOs Licensed?

Entities intending to offer tokens to the public, including stablecoins, in exchange for fiat currency or other virtual assets, must register under Section 25(5) of the VAITOS Act 2021. This registration ensures transparency and investor protection in public token distributions.

 

Which VASP Activities Require Licensing?

To ensure a well-regulated and secure environment for virtual asset transactions, the following activities conducted by VASPs specifically necessitate obtaining an FSC license:

Do Exchange Services Require Licensing?

This includes services facilitating the exchange between fiat currencies and stablecoins, or between stablecoins and other virtual assets, providing a gateway for users to access and trade digital currencies.

Do Stablecoin Transfer Services Require Licensing?

Any service that performs the transfer of stablecoins on behalf of another natural or legal person, whether for payment, remittance, or other purposes, falls under this category, ensuring traceability and compliance.

Do Custody, Safekeeping, or Administration Services Require Licensing?

Services involving the secure holding, safekeeping, or administration of stablecoins or instruments enabling control over stablecoins on behalf of clients, requiring strong security protocols and fiduciary responsibilities.

Do Wallet Services Require Licensing?

Offering hosted wallet services where the VASP maintains control over a user’s private keys or other means of access to stablecoins, necessitating stringent cybersecurity measures and data protection.

Do Marketplaces, Brokerages, or Advisory Services Require Licensing?

Activities related to the operation of trading platforms (marketplaces), brokerage services for stablecoin transactions, or providing financial advisory services pertaining to stablecoins, demand a high degree of transparency and fair trading practices.

In Mauritius, the Financial Services Commission (FSC) mandates licensing for any entity involved in stablecoin issuance or operation, as well as Virtual Asset Service Providers (VASPs) undertaking specific activities. This ensures strong oversight, fosters investor confidence, and maintains financial ecosystem integrity.

1. Are Stablecoin Issuers and Operators Licensed?

Any entity issuing or operating stablecoins in Mauritius, regardless of technology or pegging mechanism, requires FSC licensing. This covers the entire lifecycle, from creation to redemption.

2. Are Issuers of ITOs Licensed?

Entities offering tokens to the public (including stablecoins) in exchange for fiat or other virtual assets must register under Section 25(5) of the VAITOS Act 2021 for transparency and investor protection.

 

Operating any stablecoin or virtual asset service without the requisite FSC license is prohibited under Mauritian law and carries legal and financial penalties, including fines and imprisonment.

 

Which VASP Activities Require Licensing?

To ensure a secure environment for virtual asset transactions, the following VASP activities necessitate an FSC license:

Exchange Services

Facilitating exchange between fiat currencies and stablecoins, or stablecoins and other virtual assets.

Stablecoin Transfer Services

Performing transfers of stablecoins on behalf of others for payment, remittance, or other purposes.

Custody, Safekeeping, or Administration

Holding, safekeeping, or administering stablecoins or instruments controlling them for clients.

Provision of Wallet Services

Offering hosted wallet services where the VASP controls a user’s private keys or means of access to stablecoins.

Marketplaces, Brokerages, or Advisory Services

Operating trading platforms, brokerage services, or providing financial advisory related to stablecoins.

Mauritius offers license types tailored to stablecoin activities, each ensuring comprehensive oversight, investor protection, and market integrity. These licenses address distinct operational mandates and require adherence to stringent prudential and operational standards set by the FSC.

Issuer of Initial Token Offerings (ITO) License

• For entities issuing stablecoins to the public.
• Ensures transparency and AML/CFT compliance.
• Mandates asset management, auditing, disclosure, and governance.

Class M (Broker-Dealer) License

• For entities facilitating stablecoin buying/selling, intermediaries, or operating order books.
• Requires strict capital, risk management, and fair trading practices.

Class O (Wallet Services) License

• Mandatory for custodial/non-custodial wallet providers for stablecoins.
• Covers generation, storage, and transfer of stablecoins.
• Demands advanced cybersecurity and strong key management.

Class R (Custodian Services) License

• For entities safeguarding and administering stablecoin reserves.
• Ensures secure asset storage infrastructure and strict audit requirements.
• Requires transparency in reporting holdings for peg reliability.

Class I (Advisory Services) License

• For firms providing advice or recommendations on stablecoin investments.
• Ensures qualified professionals and adherence to ethical standards and disclosure.

Class S (Marketplace) License

• For operators of centralized/decentralized stablecoin trading platforms.
• Mandates effective operational controls, market surveillance, and fair price discovery.

 This structured licensing approach by the FSC fosters innovation while mitigating risks associated with virtual assets, through specific prudential and operational requirements for each license type.

The license application process for stablecoin operations in Mauritius is a multi-stage process, starting with company incorporation and ending with a comprehensive review by the Financial Services Commission (FSC). Thorough preparation of the application dossier is essential for timely regulatory approval.

What is the first step: Company Incorporation?

This step involves establishing a legal entity within Mauritius, such as a Global Business Company (GBC). This phase includes registering with the Registrar of Companies and fulfilling all statutory obligations.

How is Documentation Prepared?

Applicants must compile a dossier of documents, including a business plan, technical white paper, and strong compliance frameworks adhering to international standards for AML and CFT, data protection, and consumer safeguarding.

How do you Submit the FSC Application?

The complete application package, including all requisite documents and prescribed nonrefundable fees, must be submitted to the FSC. Ensuring the integrity and completeness of this submission is critical to avoid delays.

What does the Review & Due Diligence involve?

The FSC undertakes a review, typically within 30 days, assessing compliance, conducting due diligence on beneficial owners and management, and evaluating operational soundness and technical infrastructure. The FSC may issue queries or request clarifications.

What about License Grant & Ongoing Compliance?

Successful completion results in the grant of the operational license. This marks the beginning of an ongoing commitment to regulatory compliance, including continuous reporting, adherence to prudential requirements, and regular audits.

The application timeline, from initial incorporation to final licensing, can extend significantly. Depending on the complexity of the business model, completeness of submissions, and responsiveness of the applicant to FSC queries, the process may range from three to nine months, highlighting the importance of thorough preparation and proactive engagement.

Adhering to these requirements with precision will enhance the likelihood of a successful and timely license acquisition, positioning the stablecoin operation for compliant market entry.

Mauritius’ regulatory framework for stablecoins emphasizes stringent reserve requirements and custody standards. These mandates safeguard financial stability, protect consumers, and ensure market integrity by requiring stablecoins to be fully collateralized, transparent, and securely managed.

What are the 100% Full Reserve Backing Requirements?

The FSC mandates 100% reserve backing. For every stablecoin issued, an equivalent value in liquid assets (fiat currency, cash equivalents, or short-term government securities) must be held. This ensures immediate liquidity and redeemability, eliminating fractional reserve practices and mitigating systemic risk.

What are the Prudential Minimum Capital Requirements?

Issuers must maintain strong minimum operational capital: at least MUR 5 million or 50% of projected annual operating expenses (whichever is higher). This capital buffer absorbs operational losses, covers contingencies, and ensures solvency independent of reserve assets.

High Liquidity: Rapid convertibility to cash

Low Risk: Minimal credit & market exposure

Currency Matching: Align to peg currency

Regulatory Compliance: Meet legal & operational standards

These pillars collectively form the foundation for a resilient and trustworthy stablecoin, ensuring that its value remains consistently anchored to its designated fiat currency.

What are the Core Criteria for Eligible Reserve Assets?

Eligible reserve assets are selected for high liquidity and minimal risk exposure. They should be denominated in the same currency as the stablecoin’s peg to minimize FX risk and ensure seamless redemption, ensuring consistent honor of redemption requests.

Is High Liquidity Required?

Convertible to fiat at stable prices.

Is Low Risk Required?

Minimal credit & market risk; immune to price fluctuations.

Is Currency Matching Required?

Reserve currency aligns with stablecoin’s pegged currency.

Is Regulatory Compliance Required?

Adherence to legal & operational standards in jurisdictions.

What are the Transparent Reporting and Custody Standards?

Beyond reserve requirements, stablecoin issuers face stringent valuation, disclosure, and secure custody standards to ensure continuous transparency and protect reserve assets from loss, theft, or misuse.

What are the Reporting & Disclosure Protocols?

1. Is Independent Asset Valuation Required?

Annual valuation by third-party auditors ensures accurate pricing and adequate coverage of outstanding stablecoins, adhering to international accounting standards (e.g., IFRS/GAAP).

2. Are Daily Reserve Value Disclosures Required?

Public disclosure of total reserve value daily (e.g., on official websites) allows real-time verification of 1:1 backing, empowering market participants to monitor stability.

3. Is Weekly Reserve Composition Required?

Detailed breakdown published weekly includes asset types, custodians, and geographical locations. This fosters trust through insights into collateral quality and diversification.

What are the Secure Custody Standards?

1. Is Asset Segregation Required?

Reserve assets are segregated from the issuer’s operational funds, insulating them from third-party claims during insolvency, as mandated by the Custody of Client Assets Rules, 2022.

2. Are Licensed Custodians Required?

Reserves must be held with reputable, licensed custodians or established financial institutions. Assets cannot be pledged or encumbered, guaranteeing availability for redemptions.

3. What are the Advanced Protection Mechanisms?

Strict obligations prevent commingling and misuse. Effective internal controls, regular audits, and transparent reporting ensure unimpeded reserve availability for token holders.

These prudential requirements collectively guarantee the solvency, stability, and integrity of the stablecoin ecosystem for all participants.

Ensuring the stability and reliability of stablecoins is paramount, necessitating stringent criteria for eligible reserve assets and meticulous custody standards. These measures safeguard investor funds, mitigate systemic risks, and foster market integrity. Below, we detail the comprehensive requirements governing both asset eligibility and the secure management of these reserves.

What are the Core Criteria for Eligible Reserve Assets?

What is High Liquidity?

Assets must be readily convertible into fiat currency at stable prices to facilitate immediate redemptions, even under stressed market conditions.

• Cash
• Short-term government securities

What is Low Risk?

Investments should carry minimal credit and market risk, largely immune to significant price fluctuations.

What are Advanced Protection Mechanisms?

Controls prevent commingling or misuse of assets. Internal controls, regular audits, and transparent reporting ensure reserves are always available for redemption.

This comprehensive framework ensures the selection of strong reserve assets and their secure, transparent management, safeguarding stablecoin holders and maintaining market stability

Reserve assets are safeguarded from issuer insolvency through a comprehensive protection framework, ensuring their availability for token holder redemptions. This multi-faceted approach integrates stringent legal, operational, and regulatory mechanisms.

Why is Asset Segregation Mandatory?

Reserve assets are legally and operationally separated from the issuer’s proprietary balance sheet.

• Protects assets from issuer’s insolvency
• Shields from general creditor claims
• Prevents commingling of funds

Is Rehypothecation & Encumbrance Prohibited?

Rules prevent custodians from misusing or encumbering reserve assets.

• Forbidden from lending or re-pledging
• Ensures assets remain unencumbered and liquid
• Directly accessible for token redemptions

What Does Regulatory Oversight Entail?

Supervision by financial regulators over issuers and custodians.

• Monitors compliance and conducts audits
• Enforces fiduciary duties
• Adds a layer of security and accountability

Custodians entrusted with reserve assets are held to strict fiduciary duties. In instances of breach or negligence, they bear legal and financial liability, which incentivizes asset protection and adds another strong layer of security for token holders.

The regulatory framework for stablecoin issuers mandates stringent controls over reserve assets, ensuring their consistent availability for token holder redemptions. This multi-faceted approach integrates legal, operational, and regulatory mechanisms to uphold the stablecoin’s peg, ensure liquidity, and protect token holders from financial risks. Understanding these explicit prohibitions and the single permitted use is important for understanding the integrity of a stablecoin’s operational model.

Prohibited Uses

• Lending Reserves
• Staking Assets
• Investing Reserves

Permitted Use

• Re-hypothecation
• Fulfilling Redemption Obligations

How do these measures isolate operational risks?

Separates reserve assets from issuer’s financial activities.

How do they prevent impairment?

Ensures reserves are not diminished by other ventures.

How do they safeguard stability?

Upholds stablecoin’s value stability and token holder confidence.

What is the rationale for these stringent restrictions?

1. How do they maintain trust and stability?

Prevents deviations that introduce credit, market, or liquidity risks to the stablecoin’s 1:1 peg.

2. How do they mitigate specific risks?

Avoids risks such as default (from lending) and market volatility (from investing).

3. How do they guarantee redemptions?

Ensures reserves are dedicated to fulfilling token redemptions.

What are the regulatory compliance and penalties for violations?

Violation of these explicit restrictions carries serious consequences. Regulatory bodies impose strict penalties, ranging from significant financial fines to the suspension or permanent revocation of an issuer’s operating license. Such breaches can also lead to reputational damage, civil litigation from token holders, and even criminal charges against responsible parties. This stringent enforcement mechanism underscores the importance of adherence to reserve asset management protocols.

How do they mitigate systemic risk?

Prevent cascading failures across the stablecoin ecosystem.

How do they safeguard token holders?

Protect investor funds and ensure redemptions are always possible.

How do they foster market stability?

Build trust and confidence in digital assets and their underlying value.

 

Capital and liquidity requirements are fundamental pillars designed to ensure the strong operational resilience and financial soundness of entities operating within the stablecoin ecosystem. These stringent mandates are critical for achieving the objectives outlined above. The requirements are carefully calibrated to reflect the varying risk profiles, operational complexities, and scale of activities associated with each distinct license class.

 

What are the requirements for Stablecoin Issuers?

MUR 5 million or 50% of annual operating expenses, whichever is higher. This requirement ensures that issuers possess financial backing relative to their operational scale, providing a buffer against unforeseen expenditures and ensuring continuous service delivery.

What are the requirements for Class M (Broker-Dealers)?

MUR 2 million minimum capital requirement. Broker-dealers facilitate transactions and manage client accounts. This capital ensures they have financial capacity to cover operational risks and meet their obligations, protecting market integrity and client assets.

What are the requirements for Class R (Custodians)?

MUR 5 million minimum capital requirement. Custodians hold and secure digital assets on behalf of clients. The higher capital reflects the critical responsibility of asset safekeeping and the potential liabilities associated with breaches or operational failures, demanding strong financial security.

What are the requirements for Class S (Marketplace)?

MUR 6.5 million minimum capital requirement. Marketplace operators often facilitate complex trading activities and may handle significant transaction volumes. This elevated capital floor addresses the broader range of market, operational, and counterparty risks inherent in their operations, ensuring a secure trading environment.

 

How do Capital and Liquidity ensure Financial Defense?

Capital Thresholds

Foundational minimums provide a strong buffer against operational and market shocks.

Sufficient Liquidity

Mandated coverage ensures prompt and reliable redemption even under stressed market conditions.

 

This combination creates a multi-layered financial defense mechanism, meticulously engineered to protect token holders and underpin the stability and trustworthiness of the stablecoin sector. Adherence to these requirements is continuously monitored by regulatory bodies.

These differentiated capital requirements underscore a risk-based regulatory approach, tailoring financial safeguards to the specific functions and inherent risks of each licensed operational model within the stablecoin ecosystem. Regular assessments ensure ongoing compliance and adaptiveness to evolving market dynamics.

What are Clearly Defined Terms?

White paper must detail eligible assets, conversion rates, fees, and procedural steps to ensure clarity and commitment.

What are Comprehensive Disclosures?

Issuers must provide accessible, and understandable disclosures on the redemption process, limitations, and legal recourse.

What is Segregated Reserve Support?

Redemption rights are backed by segregated reserves, held separately and insulated from insolvency risk, with independent custodianship and regular attestations.

Are Arbitrary Restrictions Prohibited?

Arbitrary or unfairly applied restrictions on redemption are prohibited, ensuring equitable access and fair treatment for all token holders.

 

The Financial Services Commission (FSC) rigorously enforces the following critical aspects governing the redemption process:

What is Strict Timeframe Compliance?

Redemption requests must adhere to publicly disclosed and contractually agreed timeframes (e.g., T+1, T+3 settlement) to avoid regulatory penalties.

What is Mandatory Transparency?

All redemption policies and procedures must be transparent, legally enforceable, and backed by sufficient, audited reserves to prevent defaults and foster confidence.

What is Prompt Suspension Reporting?

In extraordinary circumstances, issuers must promptly report any temporary suspension of redemption services to the FSC, including justification and a resolution timeline.

Stablecoin issuers face stringent disclosure and transparency mandates to protect investors, maintain market integrity, and ensure regulatory compliance in the digital asset space.

A critical element is the detailed white paper, signed by the governing body and supported by a legal opinion confirming compliance with statutory frameworks like the VAITOS Act. This document must cover:

What is the Token Structure & Mechanism?

Details on stabilization mechanism (e.g., algorithmic, fiatbacked), technical architecture, blockchain integration, and smart contract functions, explaining how price stability is maintained.

What is the Governance Framework?

Disclosure of internal governance, decision-making processes, key personnel responsibilities, and external oversight mechanisms for accountability.

What are the Risk Factors?

Disclosure of operational, market, liquidity, smart contract, and regulatory risks, along with mitigation strategies.

What is the AML/CFT Compliance Framework?

Outline of Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) policies, including KYC, transaction monitoring, and reporting protocols.

 

Beyond the initial white paper, continuous and periodic disclosure obligations are essential for ongoing transparency and market confidence, keeping stakeholders informed about the stablecoin’s operational and financial health:

What are the Daily Disclosures?

Publication of aggregate reserve asset values, providing collateralization assurance and supporting market stability.

What are the Weekly Disclosures?

Breakdown of reserve composition, including asset classes, proportions, and custodial arrangements, fostering understanding of reserve quality.

What are the Periodic Disclosures?

Submission of financial statements and annual audited reports by independent third-party auditors, validating reserve accuracy and issuer solvency.

What are the Continuous Disclosures?

Ongoing client updates on fees, changes to redemption rights, and identified risks, empowering holders with informed decision-making.

To uphold the integrity and foster trust in the stablecoin ecosystem, stringent reserve attestation and audit requirements are paramount. These regulations mandate rigorous, independent verification and continuous oversight of reserve assets, ensuring transparency, stability, and consumer protection within the digital asset market.

Reserve assets backing stablecoins must undergo a mandatory independent annual valuation or audit. This process is conducted by FSC-recognized auditors or experts who possess knowledge of both financial markets and blockchain technologies. The objective is to provide an unbiased assessment of the stablecoin’s backing. The attestation must confirm the following key aspects:

Are Reserves Adequate?

Verification that the total value of reserve assets is equal to or exceeds the aggregate value of all outstanding stablecoins, ensuring full backing. This includes assessing the fair market value of each asset.

Are Reserves Properly Segregated?

Confirmation that reserve assets are legally and operationally segregated from the issuer’s operational assets. This prevents commingling and protects reserve funds from issuer insolvency or other liabilities.

Is There Sufficient Liquidity?

Assessment of the reserve’s ability to meet redemption requests promptly, even under stressed market conditions. This evaluates the ease and speed with which reserve assets can be converted to fiat currency.

Is Custody Compliant?

Verification that reserve assets are held with reputable and regulated custodians, adhering to custody requirements and best practices for asset security and availability.

 

These comprehensive audit requirements are further reinforced through a structured timeline of ongoing obligations, designed to maintain continuous oversight and adaptive regulatory response:

What are the Annual Independent Audit Requirements?

A mandatory, in-depth audit performed yearly by an FSC-approved external auditor. This review covers asset valuation, legal ownership, and operational controls to provide an overarching assurance of reserve integrity.

What is the Enhanced Reporting Frequency?

Issuers deemed high-risk, or those with significant retail exposure, may face mandates for more frequent, potentially quarterly or monthly, reporting of reserve compositions and attestations to provide closer surveillance.

What are the Immediate Event Notification Requirements?

Mandatory and timely reporting of any material incidents or changes that could significantly impact the operational resilience, financial stability, or asset backing of the stablecoin. This includes security breaches, significant market fluctuations affecting reserves, or changes in custody arrangements.

What is Continuous Compliance Monitoring?

Ongoing supervision by the FSC involves periodic data submissions, regulatory returns, and notifications to ensure sustained adherence to all regulatory requirements and operational standards. This proactive approach helps identify and address potential issues before they escalate.

 

Critical Compliance Alert: Failure to provide timely, accurate reports or to disclose material information regarding reserve assets or operational status will trigger severe supervisory actions. These may include substantial financial penalties, immediate operational sanctions, or the suspension/revocation of the issuer’s operating license, underscoring the necessity of strict adherence to these regulations.

Stablecoin issuers and Virtual Asset Service Providers (VASPs) are categorized as reporting persons under the Financial Intelligence and Anti-Money Laundering Act, 2002 (FIAMLA). This classification subjects them to comprehensive Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) obligations to maintain financial integrity and prevent illicit activities:

Comprehensive Internal Policies & Procedures

Establish, implement, and maintain comprehensive AML/CFT policies and procedures, including risk assessment frameworks, customer acceptance, and record-keeping protocols.

Thorough Customer Due Diligence (CDD)

Conduct rigorous CDD, including identity verification, understanding business relationships, and ongoing monitoring. Enhanced due diligence (EDD) is mandatory for higher-risk cases.

Continuous Transaction Monitoring & Reporting

Implement systems for real-time and retrospective transaction monitoring to detect unusual or suspicious activities. Suspicious Transaction Reports (STRs) or Suspicious Activity Reports (SARs) must be promptly filed with the FIU.

Mandatory Sanctions Screening

Continuously screen all customers, beneficial owners, and transaction counterparties against international sanctions lists to prevent dealings with sanctioned entities.

In addition to these AML/CFT obligations, stablecoin providers must also fulfill several other requirements to ensure a strong compliance framework:

Comprehensive Employee Training

Develop and implement ongoing AML/CFT training for all relevant employees, ensuring awareness of obligations, regulatory changes, and how to identify and report suspicious activities.

Designation of Compliance Officer

Appoint a qualified and independent Compliance Officer (MLRO) with sufficient authority and resources to oversee effective implementation and enforcement of AML/CFT policies and procedures.

Regular System Audits

Subject the entire AML/CFT system, including policies, procedures, and technology, to regular independent audits to assess effectiveness, identify vulnerabilities, and ensure continuous compliance.

Extended Record Keeping

Maintain all records related to customer identification, transactions, and suspicious activity reports for a minimum of seven years, or longer if required by specific regulatory directives.

Non-compliance with these stringent AML/CFT obligations carries severe consequences, potentially leading to criminal liability for individuals and corporate entities, significant regulatory sanctions (including hefty fines), and the revocation of operating licenses, severely damaging reputation and market trust.