Within the last three years, the Bank of Ghana (BoG) has undertaken banking sector reforms to strengthen and inspire confidence in the financial system. This led to a number of banks and specialised deposit-taking institutions (SDIs) having their licences revoked. The BoG has announced that the banking and SDI sector reforms have been concluded. However, the government will continue to pursue a policy that provides appropriate mechanisms to minimise financial system instability, and deal with emerging risks using effective supervision and regulatory measures. Through the policy, the government seeks to make the Ghanaian financial sector the preferred source of finance for domestic companies, and further develop, strengthen and modernise the financial sector to support the government’s economic vision and transformational agenda. The BoG supports the general economic policy of the government by promoting economic growth, and the effective and efficient operation of banking and credit systems in Ghana. The BoG, to create a stable and efficient financial system, still has the following on its agenda:
The Special Prosecutor has commenced Investigations into alleged corruption and corruption-related offences perpetrated by officials of the BoG, banks, SDIs and financial holding companies. The Special Prosecutor will take all necessary and reasonable steps to protect the safety and welfare of all informers, whistle-blowers and witnesses. Therefore, any institutions or individuals found complicit will be arrested and prosecuted.
What are the defining characteristics of a bank to be caught by the banking laws and regulations? Is non-bank fintech regulated differently?
The legal and economic functions of the bank determine whether the provisions of Act 930 Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) apply to it. A financial institution that engages in the deposit-taking business and is issued with a banking licence is subject to banking laws and regulations.
Non-bank fintechs are subject to Act 987 Payment Systems and Services Act, 2019 (Act 987). This law must be read in connection with Act 930. Fintech companies are supervised by the BoG.
Do the rules vary depending on the size or complexity of the banking institution?
The rules are the same for all banks regardless of their size or complexity.
Primary and secondary legislation
Summarise the primary statutes and regulations that govern the banking industry.
Act 930 is the primary statute governing banking industry in Ghana. This came into force on 14 September 2016 to repeal Act 673 Banking Act, 2004 (Act 673). The new banking law has consolidated the laws relating to deposit-taking and regulates institutions that carry on deposit-taking business. It does not apply to credit unions and leasing companies that are licensed and supervised under Act 774 Non-Bank Financial Institutions Act, 2008.
Act 930 is wider in scope compared with the repealed Act 673 and has given the BoG increased supervisory powers.
The concept of the financial holding company was introduced under Act 930. A person will not be permitted to serve as a financial holding company of a bank, save where it has registered with the BoG. The BoG is vested with the powers to exempt a foreign bank or other foreign company from the registration requirements of a financial holding company. The BoG may grant that exemption to a foreign bank or other foreign company provided that it is regulated and supervised in another jurisdiction. There should be some evidence that the foreign bank or company is supervised on a consolidated basis in its home country or another host country where it has substantial operations. Act 930 imposes personal liability on principal officers or directors of a financial institution for non-compliance with a regulatory requirement and gives the BoG the power to formulate corporate governance directives and rules for financial institutions in Ghana, such as:
Which regulatory authorities are primarily responsible for overseeing banks?
The BoG is the only institution vested with supervisory and regulatory authority in all matters regarding deposit-taking businesses. It supervises banks and non-bank financial institutions. It is responsible, inter alia, for:
It also deals with unlawful or improper practices of banks and SDIs.
The BoG has the sole responsibility to license banks and SDIs, to grant approval of foreign banks in relation to the establishment of representative offices, and to register financial holding companies. It regulates and supervises banks, SDIs and financial holding companies on a solo basis.
The Securities and Exchange Commission regulates the activities of banks that participate in the capital market.
Government deposit insurance
Describe the extent to which deposits are insured by the government. Describe the extent to which the government has taken an ownership interest in the banking sector and intends to maintain, increase or decrease that interest.
Deposits of customers of regulated financial institutions (banks and SDIs) are not insured by the government. However, a deposit protection scheme (DPS) was created under Act 931 to serve somewhat as insurance of deposits with financial institutions. In the light of Act 931, all regulated banks and SDIs automatically become members of the DPS. Banks and SDIs are required to insure their stated deposits with the DPS, which is managed by the GDPC.
Although the DPS was expected to have commenced with the coming into force of Act 931 on 14 September 2016, it has not yet done so. However, the GDPC became operational on 30 September 2019. The board of the GDPC has been constituted by the President of Ghana. The GDPC was resourced in 2018 and steps are being taken to actively engage various stakeholders to create public awareness of their operations and the expected role of banks, SDIs and the microfinance institutions to be enrolled in the DPS.
The DPS will serve as an insurance of deposits for customers of banks and SDIs. The aim of the scheme is to protect small depositors in the event of revocation of licence, or insolvency of banks or SDIs. In other words, it will provide a safety net for depositors in the event of a bank failure.
The DPS is at no cost to customers of banks and SDIs. It will be funded by premiums and other fees collected by the GDPC from banks and SDIs that are members of the DPS. At the start of the DPS, a member shall pay an initial one-off premium of 0.1 per cent of its minimum paid-up capital to the GDPC. The minimum paid-up capital of banks and SDIs varies. Banks and SDIs will also be required to pay annual premiums in respect of the DPS to the GDPC. The annual premium may range from 0.3 per cent to 1.5 per cent of the total deposits insured by the DPS at the end of the preceding year. An extension is granted to specified deposits that do not form part of total deposits for the purpose of determining the annual premium payable by a bank or an SDI. It should be noted that banks SDIs do not pay the same annual premiums. An assessed annual premium will have to be paid on pro rata basis within 30 days of the end of each quarter.
The DPS entitles a customer of a financial institution to be compensated to a certain limit in the event that an insurable event crystallises. An ‘insurable event’ refers to an event that necessitates the revocation of the licence, or the appointment of a receiver or a liquidator of a bank or an SDI. The maximum amount that a customer of a bank can be paid by the GDPC is 6,250 cedis.
Equally, a customer of an SDI can receive a maximum of 1,250 cedis. A customer whose money with a financial institution is more than what he or she received from the GDPC may have to recover the difference from the receiver or liquidator of the financial institution.
Transactions between affiliates
Which legal and regulatory limitations apply to transactions between a bank and its affiliates? What constitutes an ‘affiliate’ for this purpose? Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified.
Transactions between a bank and its affiliates are subject to sections 64 and 65 of Act 930.
A bank must not allow a financial exposure of an affiliate to be outstanding except on terms that reflect an arm’s-length provision. That is, a bank must ensure that matters such as the creditworthiness, interest rate or the value of the collateral and the terms of the transaction do not differ from the terms of a comparable transaction between independent persons.
Similarly, a bank cannot accept a financial exposure of an affiliate if the total financial exposure of the affiliate is more than 25 per cent of net own funds. Where the financial exposure of the affiliate is less than 25 per cent of net own funds, the bank can take on the exposure.
A regulated financial institution requires consent in writing from the BoG before it can purchase or transfer a non-performing or low-quality asset from any of its affiliates, associates, directors, key management personnel, shareholders or a related person or group of related persons, or their related interests.
For this purpose, an ‘affiliate’ of a company refers to:
Also, transactions between a bank and its affiliates are subject to transfer pricing rules under Act 896 and Legislative Instrument 2188 of the Transfer Pricing Regulations 2012.
A person shall not engage in a regulated activity except if licensed to do so by the BoG. A person who carries out a deposit-taking business without a licence commits an offence and shall be liable to a fine of between 30,000 and 60,000 cedis in the case of a body corporate. Further, the principal officers of the body corporate operating without a licence shall be issued with a fine of between 18,000 and 36,000 cedis or imprisoned for two to four years. Consequently, banks and SDIs must obtain authorisation from the BoG to accept deposits from the public.
Permissible activities for banks and SDIs are:
SDIs are precluded from engaging in the trading of foreign exchange or rendering services that are denominated in foreign currencies.
Some of the permissible activities for financial institutions fall under the purview of other legislation. In this case, it is required that the financial institution must comply with the relevant legislation in respect of registration, licensing and authorisation requirements. For example, where a financial institution plans to list on the Ghana Stock Exchange or issue securities, it would have to comply with Act 929 and its attending regulations.
There are restrictions on a financial institution that engages directly in a commercial, industrial or agricultural business.
A ring-fencing rule applies to the financial industry. The banking business of a financial institution will be deemed as separate from other business activities of the same financial institution.
Through Ghana Interbank Payment and Settlement Systems Limited (GhiPSS), financial institutions, fintech companies and telecommunications companies have introduced many services to make and receive payments. This includes the transfers of funds across bank accounts within minutes such as through the near-real-time transfers and instant transfers available through GhiPSS Instant Pay. It is also possible to transfer funds from bank accounts to mobile money wallets and vice versa, while payments can be made directly from bank accounts or mobile money wallets using cards.
What are the principal regulatory challenges facing the banking industry?
Liquidity compliance
Banks are required to report their liquidity positions to the BoG. For example, each bank must have a reserve of 9 per cent of its weighted average deposit with the BoG. The obligation is on the banks to monitor their liquidity so that it does not fall below the required threshold, otherwise the bank will be penalised by way of a fine.
Anti-money laundering compliance
Financial institutions are required to report suspicious transactions or flag issues of money laundering to the appropriate authorities. Technological complexity makes identifying and reporting any suspicious transactions by financial institutions a priority. The mode of payment within the Ghanaian economy remains cash-based but is fully digitised. This poses a high risk of money laundering activities.
Most financial institutions have anti-money laundering (AML) officers to report on these matters and regular training is being provided in this respect. The establishment of the Financial Intelligence Centre and the Economic and Organised Crime Office provides support to the banking industry for AML compliance. In an effort to reduce money laundering incidents, third-party depositors into bank accounts that are not theirs are required to produce identity cards before the transaction can be completed.
Registration of charges
Banks must register charges, securities or collaterals provided by customers to secure a loan within 28 days with the Collateral Registry or the Companies Registry. Banks and SDIs are not currently keeping up with these registration requirements. Failure of a bank to comply renders the collateral provided by the customer to be of no effect as security for a borrower’s obligations for repayment of the money secured. The money secured shall immediately become payable despite any provision to the contrary in any contract. Banks are having difficulty in complying in this regard because of bureaucracy within government agencies.
Asset quality
It is an undeniable fact that poor asset quality has been a major cause of most banks’ failures. This is mainly due to inadequate management in lending policies. Market knowledge of poor asset quality often leads to pressures on banks' short-term funding positions, which usually result in a liquidity crisis or an outright run on the bank. To determine if a bank is good, it is critical to assess the bank's credit risk management strengths and weaknesses, and also evaluate the quality of the investment and loan portfolios by using trend analysis and peer comparison. In recent times, most banks have instituted a tight credit stance that has resulted in a flat loan book growth in Ghana.
Experienced management team
The management of a good bank possesses the technical competence, leadership and administrative ability to run a bank. The calibre of some bank officials who used to run financial institutions in Ghana left much to be desired. As a result, the BoG came out with the fit and proper guidelines aimed at ensuring that the right persons with the requisite qualifications and experience become managers of the banks.
Capital adequacy requirements
Banks must comply with capital adequacy requirements, which pose a challenge for them. Non-performing loans and related party transactions contribute to the inability of some banks to satisfy the capital adequacy requirement.
Are banks subject to consumer protection rules?
Banks are subject to consumer protection rules. The BoG has the responsibility to enforce consumer protection rules. It is vested with the statutory duty of developing appropriate consumer protection measures to ensure that the interests of bank customers and the SDIs are adequately protected. On 10 February 2017, the BoG issued the Consumer Recourse Mechanism Guidelines for Financial Service Providers (the Guidelines) in light of the power granted to it under Act 930 to issue measures to protect consumers. The Guidelines are applicable to:
The BoG’s Investigation and Consumer Reporting Office (ICRO) has the responsibility for protecting consumers of financial products and services, and also to educate customers on their rights and responsibilities. If the ICRO receives complaints from bank customers and customers of SDIs, they will investigate with a view to protect customers.
Some of the consumer protection rules have been set out below. Financial institutions are required to:
The status of consumer protection in Ghana is currently weak because there has not been enough action by the government to tackle the main issues. There are no general consumer protection laws and there are no clear consumer protection regulations for financial services. Banks’ interests and clients’ interests are not adequately defined and differentiated in the existing laws. Informal collectors and creditors have the advantage of being close to the populations that they serve and able to offer fast services, but there are concerns about behaviour with respect to consumer protection as many of these businesses are not part of any associations.
In what ways do you anticipate the legal and regulatory policy changing over the next few years?
With the enactment of Act 987, a conducive regulatory environment has been created for digital financial services. Digital services also face the risks of cyber and internet fraud.
Act 1038 Cyber Security Act, 2020 and Act 1044 Anti-Money Laundering Act, 2020 are the most up-to-date pieces of legislation that intend to build consumer confidence in Ghana’s digital transformation agenda.
It is anticipated that new legislation and amendments may be brought into force to deal with unresolved issues flowing from Act 987 and possibly to regulate cryptocurrencies.
Law stated date
Give the date on which the information above is accurate.
