Financial holding companies directive takes effect in 2019

Ernest Addison, Governor, Bank of Ghana (BoG)

In line with the lessons learnt from the troubles of the banking system over the past two years, the Bank of Ghana (BoG) will roll out its directive on financial holding companies effective 2019.

This decision, according to the Governor of the BoG, Dr. Ernest Addison, is due to the level of related-party transactions that had become so endemic in the banks that were liquidated.

He made this known at the Annual Dinner of the Chartered Institute of Bankers (Ghana) in Accra.

The implementation of the new directive in 2019 would operationalize the provisions of the Banks and Specialized Deposit-Taking Institutions Act 2016 (Act 930) relating to Financial Holding Companies, as well as prescribing the permissible and non-permissible activities for Financial Holding Companies.

Under Act 930, existing holding companies that are non-financial in nature must be divested and a financial holding company established as a parent of the bank/specialized deposit taking institution and the other financial subsidiaries.

According to the directive, a financial holding company is one that controls a bank or specialized deposit taking institution whose operation is subject to the Central Bank’s regulations.

This directive seeks to facilitate effective consolidated supervision of the regulated financial institutions and to further engender the safety and soundness of the banking system, ensuring that holding companies and affiliates of banks and SDIs do not take advantage of banks and SDIs within such groups at the expense of depositors and other creditors.

In addition, government has indicated that it will set up a high-level financial stability council with a key objective of bringing together all financial sector regulatory bodies and the Ministry of Finance to work together to minimize, if not eliminate, regulatory arbitrage and other sector-wide risks.

This Directive shall apply to all Regulated Financial Institutions.

The board of directors of each Regulated Financial Institution shall be responsible for ensuring that the provisions of this directive are complied with accordingly.

By Joshua W. Amlanu