In a bid to try and cash in on the Crypto start up boom key IOFC Seychelles has in place a little-known law that purports to encourage Fintech businesses (that may otherwise be considered licenseable activities) to incorporate in Seychelles without needing to apply for any form of Special License.
This article examines the juxtaposition as between the fine print of the regulations as worded versus how it might work in practice for any prospective applicant.
The legal provision in question is known as the Seychelles Financial Services Authority (Regulatory Sandbox Exemption) Regulations, 2019. You can view a copy of the Regulations here: https://seylii.org/sc/legislation/si/2019/36/SI%2036%202019%20-%20Financial%20Services%20Authority%20%28Regulatory%20Sandbox%20Exemption%29.pdf
The key takeouts are these:
- An eligible person may obtain from the Authority, exemptions from the — (a) licensing; (b) disclosure; (c) reporting, requirements under the Securities Act to offer different eligible financial services for testing purposes.
- Eligible financial service “means — (a) providing a financial product advice in relation to a particular kind of financial product; or (b) applying for or acquiring a particular kind of financial product; or (c) issuing, varying or disposing of a non-cash payment facility; or (d) arranging for the issuing, varying or disposing of a particular kind of financial product.
- The exemption applies for a maximum period of 24 months or until such time as specific legislation comes into play which regulates that particular activity. As such there is no certainty.
Interestingly as far as can be ascertained at the time of writing (21 November 2021), only one Company has successfully applied for this exemption.
We can also reveal that a very senior (genius) Australian/UK/Seychelles qualified Lawyer hitherto has drafted almost all the Seychelles Financial Services Industry laws since 2003 (including the Seychelles Mutual Funds Act, the Securities Act, the Foundations Act, The new Trusts Act and more). Interestingly, notwithstanding that he has also (as of 2 years ago) drafted legislation that will enable Crypto related enterprises to apply for specific licenses under Seychelles law (sadly this act hasn’t yet been circulated for feedback from stakeholders… meaning its 1-2 years away from being passed into law) the gent in question had no involvement with the drafting of these Regs.
A considered view of these Regs is that they are clumsy and unworkable. Which would probably explain why only one business has successfully applied for such an exemption. To quote a very senior Consultant who was asked (in confidence) to review the Seychelles Financial Services Authority (Regulatory Sandbox Exemption) Regulations, 2019 “the thing that the key players inside the Seychelles FSA (ie the Financial Services Authority) don’t understand is that the Regs are an adjunct to the Securities Act and as such an exemption can only be given for an activity that would otherwise be a licenseable activity under the Securities Act eg a Securities Dealers License, a Money Exchange License, a Financial Advisers License etc”. Most Crypto related activities wouldn’t fall under these categories. Moreover, the Authority itself doesn’t have a clear set of guidelines in terms of what kind of businesses they will grant exemptions for.”
Why is this so? The unfortunate reality is that (notwithstanding that the jurisdiction has been gift-wrapped and hand delivered some of the cleverest and most market friendly “Offshore” laws/products of the past 20 years) there is a VERY small talent pool inside the Seychelles FSA/Govt (the entire population of the country is only 100,000). The key decision makers inside the FSA are mostly recent University graduates with little understanding of complex areas of law such as this. The easy thing for them to do is to procrastinate hoping that the applicant will lose interest and or eventually (after much to and fro) decline to approve the application. To put in the vernacular if you do decide to apply for such a license you can expect to be messed about royally…. You could spend 6 months and thousands of dollars in legal etc fees and get nowhere… These Regs were very rushed and not at all thought-through. In short, in practice, it would seem that the Seychelles FSA doesn’t have the brain power and/or the staff and/or the wherewithal to deal with applications arising from these Regs…
Moreover, it is our understanding that if you do get approved in principal for the exemption you would need to provide proof that either (a) you have the requisite license to sell and or manufacture this product/service in the jurisdictions in which you intend to operate or (b) that such a license is not necessary in the places where you intend to do business.
All that said it should also be noted that, in any event, the Securities Act only purports to regulate activity that takes place in or from Seychelles. As such you could form a Seychelles IBC and, provided you have no Directors/Shareholders inside Seychelles, – and have no clients or staff inside Seychelles – you would not be in breach of the Securities Act and as such you would not need to apply for any form of exemption.
The proof of that pudding is in the eating… FYI for the past 18 months and more, every other week we have managed to incorporate a new Defi related enterprise in Seychelles including Cryptocurrency Exchanges (we actually incorporated the Bitmex group of Companies), Token Offering Companies and ICOs/etc without needing to apply for licenses or exemptions.
That said if you are (or one of your clients is) insistent on applying for an RSL (Regulatory Sandbox License) we’d suggest you take a close look at the Mauritius Regulatory Sandbox License Regs which are also aimed at Fintech entrepreneurs but eminently more thought through. Check this link for details: https://offshoreincorporate.com/setting-up-an-ico-in-mauritius/
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DISCLAIMER: OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local reporting/tax requirements before committing to set up or use an Offshore Company or other entity.