Viewpoint: David Ofosu-Dorte
In 2016 Ghana passed two laws which have enhanced the scope of protection afforded to depositors; namely the Banks and Specialised Deposit Taking Institutions Act 2016 (Act 930) – which repealed the Banking Act 2004 – and the Ghana Deposit Protection Act 2016 (Act 931). The laws introduced new mechanisms and features designed to enable the Bank of Ghana (BoG) to provide protection for depositors in a proactive and reactive manner. Key features of the laws include provisions for the statutory takeover of banks engaged in criminal activity, and provisions for the takeover of the assets and liabilities of insolvent banks. The act also provides a consumer protection regime for bank customers and establishes a deposit protection scheme.
Under the laws, if the BoG determines that a bank’s management has engaged in, or is engaging in, illegal activities with the potential of negatively affecting the interests of depositors, the central bank can intervene by appointing an official administrator to take over the management of the bank. Furthermore, the BoG is empowered to intervene in the affairs of the bank to forestall further mismanagement and prevent possible collapse.
The official administrator is subject to the central bank’s oversight in the performance of their duties and must submit reports on the financial conditions and future prospects of the bank on a regular basis. Based on the findings of these reports the central bank has the power to take key decisions on behalf of the bank including an increase or recapitalisation of the bank’s capital through the issue of new shares to existing or new shareholders, or through the merger, sale or restructuring of the bank. These measures are designed to rescue affected banks from collapse and to thereby protect depositors.
Receivership occurs when the BoG determines that a bank is, or is likely to become, insolvent, and therefore deems it necessary to revoke the bank’s licence. The BoG must appoint a receiver over the assets and liabilities of the affected bank at the same time as the bank’s licence is revoked. Prior to Act 930, the legal framework on bank insolvency focused largely on liquidation. The appointment of a receiver is a mechanism to protect depositors because the receiver is usually a disinterested party that steps in as an unbiased administrator with responsibilities over the assets and liabilities of the bank. The receiver is required to administer the bank’s affairs in a fair and just manner. Furthermore, they help to remove the risk of shareholders or directors acting to recover ahead of depositors and other stakeholders, which could thereby circumvent the rights of these stakeholders with respect to sharing in the residue of the banks assets.
The deposit protection scheme administered by the deposit protection corporation is another step to ensure the protection of depositors. The scheme aims to protect depositors, especially small depositors, from losses incurred in the event of liquidation or receivership of a bank or specialised deposit-taking institution. The law sets up a fund from which relevant payments may be made to depositors where an anticipated event occurs that affects the recovery of their deposited funds. This system is intended to promote trust in the banking and financial system in Ghana.
To support this legislation the BoG has issued consumer recourse mechanism guidelines for financial services providers. Banks are required to comply with these guidelines in the delivery of services to customers. The guidelines proscribe certain conduct by banks and non-compliance has been made punishable by sanctions, including the imposition of fines. Apart from the mechanisms discussed above, it is expected that the new regulatory environment will foster additional operations by financial institutions that will work in the interest of depositors.
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