The Bank of Ghana has released a new directive – Fit and Proper Persons Directive 2019 – which sets out the minimum assessment criteria for its approval of persons to serve as significant shareholders, directors and key management personnel in the commercial banks, savings and loans companies and deposit taking finance houses regulated by the central bank. A similar directive will follow in due course which sets the assessment criteria and guidelines for such positions in rural and community banks, micro-finance institutions and non-deposit taking institutions.
The new directive, released yesterday, replaces the Fit and Proper Directive 2018, being far more comprehensive, and importantly, far more stringent. However, combined with its strictness, it gives the BoG full discretionary powers to interprete its provisions, which means there is plenty of scope for controversy going forward, over whom the central bank approves of and who it does not, especially where people with open political affiliations are concerned. Crucially however, the central bank is backed by several overlapping laws that empower it to discern who is fit and proper.
The directive will be crucial to ensuring that the quality of corporate governance – and resultant risk management – is high enough to avoid many if not most of the mistakes that led to the recent banking sector melt down that saw nine indigenous banks liquidated within the space of one and a half years. It aims to prevent people with lack of requisite expertise and experience, with lack of personal or professional integrity, or with conflict of interest, from occupying positions of authority in the financial institutions regulated by the BoG. To achieve this, regulated institutions are to conduct assessments using the BoG ‘s laid down criteria prior to the appointment of such persons and at least annually thereafter, or where the institution becomes aware of information that may materially compromise a person’s fitness and propriety.
With regards to minimum assessment criteria that significant shareholders, directors and key management staff of such financial institutions must meet, the BoG has set minimum levels of financial integrity, personal reputation and a demonstration of sufficient appreciation of the business of banking.
Financial integrity will be assessed by issues such as fulfilment of his/her financial obligations, whether or not the person has issued a dud cheque, or whether the person has been found guilty of a financial infraction among other things, but importantly does not depend on one’s income level. Reputation will be adjudged, among other things by a person’s legal history of conviction by a court or not, by level of adherence to laws designed to protect members of the public against financial loss, by adherence to requirements and standards of regulatory and professional bodies, by his professional and personal conduct, and by his involvement or otherwise in managing a company that has fallen foul of the law or gone insolvent. Appreciation of banking business will be assessed by the person’s academic and professional qualifications and by his practical experience in the following fields: banking, law, finance, accounting, economics, information technology, business administration, financial analysis, entrepreneurship, risk management, strategic planning, corporate governance and other fields determined by the BoG from time to time.
Crucially though, the BoG will apply the principle of proportionality – application of assessment criteria will be commensurate with the size, nature and complexity of the regulated institution – and case by case assessment and this is where its discretionary powers are bound to generate controversy sooner or later. However the central bank promises due process and fairness in its assessments.
The new directive also creates disclosure requirements concerning the relationships a person has with other significant shareholders, directors and key management personnel in the institution as well as enterprises it does business with in any way. This is to enable the BoG guide against insider trading which emerged as a major cause of the collapse of several banks during the recent reform exercise.
No timeline has yet been given as to when the new directive will be implemented in earnest but there are bound to be some shake-ups – some with accompanying protests and resultant controversies – when the BoG begins applying it to the letter.