In the late 1980s and the early 1990s, the BoM had aptly dealt with at least two cases of Ponzi-like schemes - structured by swindlers (Robin Hoods with Alzheimer's) - long before they had reached the tipping point of collapse. If ignored with a tang of negligence, the Ponzi schemes would have morphed into pyramidal financial structures and finally crashed with serious consequences. The then Managing Director of the BoM with the support of the police had ably destroyed the game plans of the schemers before it was too late. Those were days when intelligence regarding financial crimes and wrongdoings were culled and collected from whistleblowers. Mauritius did not have a Financial Intelligence Unit.
The establishment of an offshore banking centre in 1989 followed by the setting up of a non-bank offshore financial business centre was a watershed in the monetary and financial history of Mauritius. A regulatory-cum-marketing authority, the Mauritius Offshore Business Activities Authority was set up. The BoM regulated and supervised the banking industry. The Controller of Insurance - an authority operating as in the Jurassic age - regulated insurance companies. The Ministry of Finance was the licensing authority of 'Money Lenders'. The Stock Exchange Commission regulated the stock market. Subsequently, the need for consolidating the various regulatory authorities into a single umbrella was palpably felt.
A single financial regulatory authority…
In 2000, the MSM/MMM Government came up with the idea of having a single financial regulatory authority for our financial industry. A Committee set up by the then Prime Minister, Sir Anerood Jugnauth, with members from various institutions including the BoM (represented by the then Managing Director of the BoM), chaired by Mr Dev Manraj, Adviser to the Prime Minister, was assigned the task of advising the Government on how best to proceed with the setting up of a single financial regulatory authority.
Over the years, the intellectual godfathers of the regulation of financial industries in various countries have come up with as many arguments in favour of a single financial regulatory as against it. The debates have not been conclusive to this day although the Bank of England has settled down with a diluted form of a new arrangement in the wake of the latest financial crisis. This new arrangement has yet to stand the test of time. Anyway, the Bank of England model is not necessarily the best.
The Manraj Committee came up with a Report making several recommendations. It's worth a mention that the Committee was not required to examine the merits and demerits of a single financial regulatory authority. Nor was it required to examine the merits and demerits of the retention of regulation and supervision of deposit-taking institutions as a function of the BoM.
The agenda of the dramatis personae (outside the Manraj Committee) appeared to have had a sinister motive : to amputate the BoM of its regulatory and supervisory arm and hived it off to the single and all-too powerful financial regulatory authority. I had submitted thirteen solid and irrefutable arguments in favour of the retention of the regulatory function of the banking industry with the BoM to Hon Paul Berenger, then Deputy Prime Minister and Minister of Finance. It was an undisclosed but cool intellectual fight to the finish (very much unlike the present day rowdy street fights between the MoF and BoM inflicting reputational damage). It had appeared to me that he found the arguments very appealing. Nonetheless, given the opposing forces at play, he appeared to have rightly sought an independent advice and I understood that he later met with Sir Eddie George, then Governor of the Bank of England. Hon Paul Berenger made an educated and wise decision to keep the regulatory function of the banking industry with the BoM. But to plug any possible regulatory gap the Managing Director of the BoM (later referred to as the first Deputy Governor) was made Chairman of the Financial Services Commission (FSC) in order to ensure proper co-ordination between the BoM and the FSC. Indeed, this legal arrangement had served its rightful purpose on quite a few critical occasions.
The law was later amended to check the BoM representative out of the FSC Board for reasons about which the least said the better. It was not out of the blue that two posts of Deputy Governors were created in the Bank of Mauritius Act 2004.
The overriding questions
In the wake of the latest collapse of a Ponzi scheme that is said to have hit a record-breaking amount of nearly Rs2.0 billion the existence of regulatory gaps and the need for bringing the regulation and supervision of our financial industry including all offshore business operations under the wings of the BoM have been aired by badly-briefed “delegated proxies” in the dying days of last week. One of the two highly pretentious “delegated proxies” equipped with insider information - strangely out-spoke to a point that seems to have breached the BoM Act. The crash of the Ponzi scheme and the shows that followed turned out to be an angling for extensive regulatory powers in troubled waters which is clearly beside the key questions of the day. The overriding questions to ask go as follows :-
(i) Did the BoM and the FSC officially and persuasively ask the Commissioner of Police (CP) to investigate into the financial crime ? If they did not, why ? And if they did, why the CP did not initiate necessary actions ?
(ii) Did commercial banks inform the Financial Intelligence Unit (FIU) about suspicious transactions ? If they did not, why ? And if they did, why did the Unit not report the matter to the ICAC/CP ?
Regulatory gaps ? Where are they in this specific case ? What the FIU stands for ? It certainly is a bad move to have kept the BoM out of the FSC Board. But in the latest version of high-stakes grifting the simple truth is that at least one of the above has been spending much of its time feeding fish parts to penguins in Antartica.
A strategic move by one of the regulatory parties caused discussions in drawing rooms and in the public to divert from who has failed in his duty to who should have an all-too powerful regulatory authority. It was amazing to watch how the atomic man could be that easily driven to hold on to superstitions. If I have to distill the vast amount of literature on regulation and supervision of financial institutions in a few words I would say this to any Government in any country : never commit the blunder of granting the powers of regulation and supervision of financial institutions to politicians. What should be a second best option for a country if the Governor of its central bank is a politician suffering from narcissistic personality disorder ? In our case, it's best to keep the regulatory and supervisory framework as it is but with some of the wiring and plumbing re-examined.