The Securities and Exchange Commission has revealed that it intends to increase the minimum capital requirement for the fund and asset management firms that it licenses from the current GHc100,000 to GHc2 million. This is a 20 fold increase that completely eclipses the increases in minimum capital imposed on the various genres of financial intermediation companies, by their own regulator, the Bank of Ghana. This was revealed to Bloomberg by SEC’s Director General, Daniel Ogbarmey Tetteh, who insists that the huge increase in minimum capital requirement is necessary to correct the current situation whereby many fund managers are caught in a crisis in which they’re unable to meet client withdrawals.
Curiously though, the impending directive, which will require legal changes, has not yet formally been communicated to the fund managers themselves. Rather the SEC boss says it will be fully communicated by the end of the year for compliance by December 2020.
The markets regulator is seeking to strengthen the funds management industry and restore confidence as at least 70,000 investors struggle to access savings that were trapped in the aftermath of a separate cleanup of banks, savings and loans companies, and micro-lenders. Many fund management firms licensed by SEC have also been caught out – some of them simply victims of financial intermediaries that have gone under but others caused by their own imprudent investments or outright financial malfeasance in the form of diversion of customers funds into disallowed purposes. Ultimately though SEC observes the fund managers it licenses do not have adequate capital buffers to fall back on when the investments they make on behalf of their customers go sour. Existing capital requirements have been too low, allowing too many people to start fund-management companies, hindering supervision, Ogbarmey Tetteh points out.
“Some who will not be able to meet that capital will have to fall out,” he told Bloomberg. Indeed, this is likely to be the fate of many fund management firms, who will have to bridge the capital deficits they are already facing with regards to monies owed to customers under guaranteed returns schemes – which have now been outlawed – before they can raise their own capital to the new minimum.
Apart from striving to meet the impending huge increase in minimum capital, some fund managers will have to convince their regulator that their professional conduct should not disqualify them from having their licenses renewed. The SEC is investigating 21 fund managers for sinking as much as GHc5 billion in risky investments such as unlisted bonds, direct private equity stakes and related-party deals that are difficult to liquidate. Another GHc4 billion is tied up in fixed-term investments, which are now starting to trickle in after the government stepped in and bailed out failed banks with GHc11.2 billion and micro lenders with another GHc925 million.
The SEC has also told fund managers, who jointly oversee GHc25 billion, to include “very liquid or near-liquid” instruments in their portfolios in future. The regulator is also engaging the central bank, the finance ministry and the receiver of the failed lenders for a quick disbursement of bailout funds to meet client withdrawals, he said.
The number of fund managers dropped to 140 in 2018 from 155 a year earlier as some voluntarily shut down and the licenses of others were revoked, according to the SEC.