Ghana’s financial sector is in crisis. A crisis occasioned by the collapse of over 300 financial institutions; and which has affected every division of the financial sector. Universal banks, savings and loans companies, microfinance companies, capital market institutions, and insurance companies have been impacted.
While majority of the collapsed institutions were licensed and regulated, a few were unlicensed and ought not to have been in operation. The fact that the unlicensed institutions were allowed a free rein to operate until their eventual collapse, speaks volumes about the existing regulatory regime and the safety of financial consumers.
Experts have identified the causes of the crisis to be: weak regulatory supervision, unethical behaviour by managers of the financial institutions, and poor corporate governance practices. In the specific case of the unlicensed institutions, their illegal activities flourished because of dereliction of duty on the part of regulators.
The devastation caused by the crisis has been severe and widespread. Apart from financial losses, consumer confidence in the financial sector has been significantly weakened. Some consumers have lost their lives as a result of the trauma of having their life savings locked up in collapsed institutions.
Unquestionably, there is the need for a regulatory regime that is fit-for-purpose. One that prioritizes the need to ensure the safety of institutions as well as prioritize the need to protect consumers. Thus, the necessity of regulatory reform is imperative.
Presently, the regulators of Ghana’s financial sector (i.e. Bank of Ghana – BOG, Securities and Exchanges Commission – SEC, National Insurance Commission – NIC and National Pensions Regulatory Authority – NPRA) have through their actions and inactions demonstrated that they prioritize Prudential Regulation (“ensuring financial institutions remain strong”) to the neglect of Conduct Regulation (“ensuring the safety and fair treatment of consumers”).
This lopsided approach to financial sector regulation has resulted in consumers suffering unfair treatment and exploitation at the hands of financial service providers. Examples of the mistreatment of consumers include: unfair pricing practices, unconscionable loan terms, misrepresentation of risks associated with products, mis-selling, product pushing, poor handling of customer complaints, etc.
The reform of financial sector regulation in Ghana must institutionalize conduct regulation and afford it the importance it deserves. This will require strong commitment from government to sponsor the needed legislation. This is the surest way to ensure the financial sector is safe and works well for all.
State of financial consumer protection in Ghana
Financial consumers in Ghana continue to suffer at the hands of financial institutions because of manifestly weak market conduct regulation. The present crisis has further exposed the deep-seated disregard and lack of commitment to financial consumer protection in Ghana.
A careful review of the regulatory interventions and policy prescriptions that have been implemented or mooted following the crisis have centered on “saving the institutions” with very little focus on “protecting consumers”.
While it is important to protect the institutions; because the safety of the institutions has implications for the safety of consumers’ deposits and investments, it is equally important to proactively protect consumers and ensure they are treated fairly and are not exploited.
Financial consumers are vulnerable and need to be protected from elements within the financial sector who would want to take advantage of this vulnerability to cheat consumers to rake in abnormal profits.
There is a widespread practice within Ghana’s financial services industry where providers; particularly banks and SDIs, arbitrarily increase fees on products and services that consumers have already signed on to. For example, it has become an annual ritual for banks and SDIs to upwardly review fees such as account maintenance fees, card maintenance fees, transaction fees etc. The only obligation the central bank has placed on the banks and SDIs is for them to give customers at least a 30-day notice period before implementing the fee reviews.
The point is often made by financial institutions that, if consumers are unhappy with the fees being charged, they are at liberty to switch to another provider. This argument is at best, disingenuous and laced with mischief because, as things stand today, it is very difficult for consumers to switch banks or SDIs.
By Woelinam Dogbe, President, Alliance for Financial Consumer Protection (AFCOP)