ARTICLE : Can Seychelles be the FinTech Wakanda?
There are numerous initiatives underway in Seychelles to foster innovation in FinTech, including digital assets and services. We explore what that means in a regional context in relation to future developments in this space.
It may come as a surprise to many that Seychelles is the major global hub for Bitcoin trading activity. Analytics provider Crystal Blockchain released a report for H1 2020, which categorises cross-border transactions of Bitcoin (BTC) based on their “country of origin.” According to the report, about 45% of BTC transfer volume originated from the G-20 countries, which include the world’s 20 biggest economies. By contrast, Seychelles covered 31% of the global volume in the first half of 2020. The most active international trade routes are Seychelles — EU, Seychelles — US, and Seychelles — South Korea, with each connection producing volumes in excess of $2 billion.
Cryptocurreny critical mass is one thing, yet how can the Seychelles build upon this to lead the FinTech revolution in Africa?
The Financial Services Authority (FSA) in Seychelles recently launched a regulatory Sandbox, fostering innovation across a broad range of digital assets and services, and enabling regulatory solutions for security token offerings under the current Securities Act.
The Sandbox is part of the Global Financial Innovation Network (GFIN); a cross-border regulatory sandbox for firms testing innovative financial products, services or business models across multiple jurisdictions; which was initially launched by the UK Financial Conduct Authority (FCA). It provides a regulated environment for companies registered in Seychelles to carry out FinTech-related financial services within the securities industry.
The Central Bank of Seychelles (CBS), furthermore, has identified that Financial Technologies (FinTech) can enhance the evolution of the financial sector, especially in areas identified in the Financial Sector Development Plan for both the onshore and offshore financial sectors. The CBS is leading efforts to formulate a National FinTech Strategy for Seychelles, in collaboration with the Ministry of Finance, Trade, Investment, and Economic Planning and the Financial Services Authority.
Needless to say, these initiatives are expected to go a long way towards establishing the status of Seychelles as the main regional FinTech hub servicing not only the offshore sector and on a Pan-African basis, but also other potential international regions, focusing on digital financial markets in the areas of properly regulated digital exchanges, digital marketplaces, digital custody, digital banking, and P2P platforms.
As such, there should be quick learning from Sandbox activity with agile transition to actual licences based on policy changes, where additional types of licences need to be supported beyond those which the Securities Act covers today. And to widen the digital financial services opportunity the Sandbox needs to be extended from just FSA regulated activities to those that the CBS regulates as well. International Business Companies (IBC’s) that currently operate exchange-like businesses should also be transitioned, initially into the Sandbox, and beyond that into formal licensing, where it exists, assuming they are up to the mark in terms of regulatory compliance, with effective KYC/ AML/ CTF measures, aligned with international best practice, in place.
With a population of just over 98,000, Seychelles is well placed to embrace the 4th industrial revolution of digital FinTech enablement. With fewer people, the smart automation that digital transformation provides, aligned with the existing financial services base, can catapult the economy into being the ‘Singapore for Africa’. It is clear that the underlying building blocks are already in place, compared to numerous other regional players who simply market the fact that they are or will be new FinTech hubs or International Financial Centres (IFCs).
From recent experience, we have observed that there is more ease of business and less protectionism in place than some regional rivals therefore allowing new FinTech business enablers to come in and flourish. As such there is less concern about the immediate OECD downgrade, as this is a short term adjustment that is being addressed with new alignment. As far as EU white lists, grey lists and black lists go, why should any entity be granted the right to subjectively decide which country fits in which bucket? In any case, digital banking, digital payments and the introduction of Central Bank Digital Currencies (CBDCs) will reduce the reliance on any single systems. And whilst the challenges of conforming to differing regulatory jurisdictions will remain, competition and reduced costs will allow bilateral trading between nations to flourish where the relationships are on a fairer footing.
Whilst Seychelles has no immediate plans to introduce a CBDC, we can see it being a necessity sooner rather than later at the rate it is beginning to develop. It is easy to introduce one, given the technology exists to facilitate it, but how it is used across the value chain, both for retail and wholesale activity is what will really define the value. We have no doubt that when the time is right, this is the approach which will be adopted, assuming the building blocks are in place to utilise it.
We can already see FinTech businesses being attracted to the jurisdiction, including our companies, with external talent working alongside local talent both onshore and offshore to create a knowledge-based economy, which is very much underway. That’s not to say that more work does not need to be done to ensure that there is growth and sustainability, but the stage has been set and the seeds have not only begun to sprout but are also beginning to bear fruit.
All this reminds us of the movie Black Panther and the fictional State of Wakanda, where a Sub-Saharan African state becomes the most advanced on earth, and has US$91 trillion reserves of the fictional metal vibranium to trade. Whilst Wakanda is in the realms of fiction right now, who is to say that this is not possible when one looks out 25 years from now? Look at what Singapore has achieved in such a timeframe.
Africa has huge potential and Seychelles, if it continues to make the right decisions at a macro level with cohesion between different financial bodies, parastatals, and the private sector, can be at the forefront. Adopting a collaborative approach, which helps foster financial development across Africa through being able to service it digitally, is the right strategy. Given the rate that technology advances, Seychelles being the Wakanda, where sustainable FinTech services rather than a raw commodity such vibranium create prosperity, may be closer than most think.