A close collaboration between the four regulatory institutions that regulate operators in the four separate segments that make up Ghana ‘s financial services industry – the Bank of Ghana, the Securities and Exchange Commission, the National Insurance Commission and the National Pensions Regulatory Authority has been on the cards for the several years now.
Indeed, there has already been some degree of co-operation and information sharing between them, but since this has not been backed by any formal, mandatory policy framework, such collaboration has been voluntary and falls short of what is actually required.
Consequently, Goldstreet Business welcomes the effort initiated by the Financial Stability Council to create and enforce a mandatory framework for collaboration between the four regulatory institutions.
To be sure, the need for this is clear and it is a lapse of policy formulation and implementation that has delayed the introduction of a formal collaboration framework until now. It is a pity that it has taken the recent melt down in the financial intermediation industry and the consequent effects on the securities and asset management industry in particular to bring this to the front-burner of policy makers.
But while the old adage, better late than never applies here, the formalized framework for collaboration should be treated as a matter of utmost urgency. This is because it is not just required to prevent a similar melt down having systemic reverberations in the future; the current crisis, which some regulators are assuring has been resolved, could actually just be the tip of a very big iceberg.
Here, the effects of the financial intermediation industry meltdown on the asset management industry is instructive. What is the certainty that it has not had a similar – but as at yet still veiled – effect on investments made by insurance companies and the private pensions industry? Indeed, it would require a forensic audit similar to the asset reviews carried out on the banking industry in 2017 to uncover such a situation and these have not yet been done.
Therefore, it is imperative that the BoG and the SEC work closely with the NIC and the NPRA to assess the real quality and consequent values of the outstanding investment portfolios of the insurance and private pensions industries.
The next key task facing the impending new regulatory collaboration would be to establish a framework that minimizes such systemic risk and stems the possibility of viral spread of a melt down in one industry spreading to the others in the future.
Actually however, this newspaper stops short of recommending that a one stop shop supervisory institution be established to replace the supervisory functions of the four separate regulators under the current dispensation, as has been done in some other jurisdictions, most notably the United Kingdom. Recent experience here in Ghana indicates that the BoG in particular is already having capacity problem coping with regulating all the various institutions under its purview.
Therefore, we recommend that each regulator retains its independent supervisor function. However, we suggest that whatever framework for collaboration is devised by policy makers includes, as its centerpiece, a committee or board consisting of top tier representatives of all four regulatory institutions, which has overriding authority over each individual institution. That board or committee would be responsible for regulation of all issues containing systemic risk across segments of the financial services industry.
Most importantly of all however is the need for urgency.