Regulatory Compliance in the Financial Sector

In today’s fast-evolving financial landscape, regulatory compliance has become more than just a legal necessity; it is a cornerstone of trust, stability, and sustainable growth. As financial institutions operate in increasingly complex markets, they must navigate a wide range of laws, regulations and international standards designed to safeguard consumers, promote transparency, and prevent financial crimes.

This article explores the various regulators who regulate financial institutions such as banks, microfinance, insurance companies amongst others as well as the critical role of regulatory compliance in the financial sector, the challenges institutions face in maintaining compliance, and the strategies for building resilient compliance frameworks that not only meet current regulatory demands but also anticipate future changes.

Who is a Regulator?

A regulator is an state agency responsible for overseeing, enforcing, and ensuring compliance with laws, rules, and standards set up by the state for businesses within a specific industry or sector. They are responsible for the issuance of licenses, conducting inspections, imposing penalties, and setting guidelines to ensure fair practices, safety, and efficiency.

What is Regulatory Compliance and the importance of regulatory compliance to financial institutions?

Regulatory compliance is the process of ensuring adherence to laws, regulations, and standards set by authorities. It involves implementing policies and controls to meet legal requirements, avoid penalties, and maintain ethical standards. It helps organizations comply with national laws, industry-specific regulations, and international standards that apply to their operations and also develop internal compliance programs to ensure that their employees follow legal and ethical standards.

Some of the key benefits of regulatory compliance include the following:

1. Helps financial institutions avoid fines, sanctions, and legal action from regulators.

2. Reduces the risk of license revocation or business restrictions as a result of non-compliance with the set standards.

3. Helps build public confidence in the finance industry and enhances the institution’s credibility among customers, investors, and partners.

4. Helps financial institutions demonstrate their commitment to ethical business practices and financial integrity.

5. Helps financial institutions prevent money laundering, fraud, and terrorist financing through Know Your Customer and the Anti-Money Laundering Act, 2020(Act 1044).

Key Regulatory Bodies in Ghana’s Financial Sector

In Ghana, there are several regulators who regulate the financial industry to ensure that businesses that are engaged in finance instruments comply with the regulatory framework that relates to the financial sector. We will however discuss the following four key regulators in the finance industry – Bank of Ghana, the Securities and Exchange Commission, the National Insurance Commission and the National Pensions Regulatory Authority:

1. The Bank of Ghana

The Bank of Ghana (“BoG”) is the central bank of the Republic of Ghana. It is a state-owned institution responsible for regulating banks and non-bank financial institutions, formulating monetary policies, and licensing and supervising financial institutions in the country.

BoG is regulated by the Banks and Specialized Deposit Taking Institutions Act 2016 (“Act 930”).

The role of the BoG has been provided for under Act 9301 to include the following:

a. The overall supervision and regulation of all matters relating to deposit-taking business.

b. Promoting the safety and soundness of banks and deposit-taking institutions, the stability of the financial system and the protection of depositors in the country through the performance of its regulatory and supervisory roles.

c. Dealing with unlawful or improper practices in the financial industry.

d. They have the sole responsibility to issue licences to banks and specialised deposit-taking institutions, grant approval to foreign banks with respect to the establishment of representative offices and register financial holding companies2.

Regulatory Compliance with BoG

Individuals and corporations who intend to operate under the scope of BoG are expected to comply with the following regulatory requirements to avoid the payment of fines and ensure the smooth operation of their business.

i. Licensing and Registration Compliance

All financial institutions or businesses must obtain a BoG license before operating. They must submit the relevant documents for approval and renew their licenses periodically while meeting capital adequacy requirements. It is important to state that operating without a license from BoG can result in fines, suspension, or imprisonment in accordance with the provisions of Act 9304.

ii. Capital Adequacy Compliance

BoG requires banks and financial institutions to maintain a minimum capital ratio of 10% of their assets5. If they fail to comply, they must promptly notify BoG and provide details of the non-compliance. Failure to notify results in a penalty of GHC 12,0006. If the capital ratio falls short, a fine of 0.05% of the shortfall is imposed daily. The director and CEO of a non-compliant institution are personally liable to pay a penalty of GHC 6,000.00.

iii. Liquidity Requirement

A bank or specialised deposit-taking institution is required to comply with the liquidity requirements put in place by BoG and submit a report on their liquid assets to BoG. Failure to comply with this will result in the payment of a penalty of not more than GHC 6,000.00 to BoG and a further penalty of GHC 600 for each day that the default continues.

iv. Anti-Money Laundering (“AML”) Requirement

BoG requires financial institutions to adhere to regulations under the Anti-Money Laundering Act, 2020(Act 1044) by implementing Know Your Customer (“KYC”) policies, reporting suspicious transactions to the Financial Intelligence Centre (“FIC”), conducting customer due diligence for high-risk accounts and submitting AML compliance reports to BoG and FIC. This is to prevent any financial crimes and money laundering activities.

Failure to adhere to these requirements will result in a liability to the financial institution involved.

v. Consumer Protection & Market Conduct Compliance

Financial institutions are required to disclose interest rates, fees, and terms of loans transparently, provide fair treatment to customers, resolve complaints effectively and adhere to BoG’s Borrowers and Lenders Act, 2020 (Act 1052).

2. Securities and Exchange Commission Ghana (“SEC”)

SEC, established under the Security Industry Act, 2016(“Act 929”) aims to regulate and promote the growth of an efficient, fair, and transparent securities market, ensuring the protection of investors.9 They are the primary regulators of the securities market in Ghana and perform the following functions in the financial industry:

a. Regulate, supervise, and issue licenses to institutions in the securities industry, such as stock exchange and brokerage firms, investment advisors, and fund managers. Financial institutions with a market operator’s license issued by SEC must pay an annual levy to support SEC’s operations.

b. Ensure that investors are protected from fraudulent activities and unfair market practices.

c. Promote the growth of Ghana’s capital market and encourage investment in securities while facilitating innovation in financial instruments and services and educate the public on securities investment and their rights as investors.

d. Advise the government on capital market policies to enhance economic growth and work with local and international institutions to improve financial market regulations.

Regulatory Compliance of SEC

SEC is governed by several laws10. This includes the Securities Industry (Amendment), 2021 (Act 1062), Securities and Exchange Commission (Amendment) Regulations, 2019 (L. I. 2387), Securities Industry Act, 2016, (Act 929), Foreign Exchange Act 2006 (Act 723), SEC Regulations 2003 (LI 1728) and the Unit Trust and Mutual Fund Regulations (LI 1695).

Institutions who operate or intend to operate under SEC’s authority must comply with these laws and the regulatory requirements discussed below:

i. Licensing and Registration Compliance

All entities and individuals engaged in securities activities, such as mutual funds11, investment advising, or stock brokerage12 amongst others are required to obtain a licence before they can commence their operations and renew it at least three months before expiration. Failure to comply with licensing requirements will result in a penalty under Act 92913.

ii. Capital Adequacy & Financial Compliance

Institutions licensed by the SEC are required to satisfy and maintain various minimum capital requirements as set by the SEC at all times, depending on their type of business. They are also required to submit audited financial statements and quarterly reports to SEC. Where an institution fails to meet the capital requirements, it may have its license revoked or suspended by the SEC14.

iii. Market Conduct & Fair-Trading Compliance

Institutions are required to prevent market manipulation, insider trading15, and fraud. They must also comply with corporate governance requirements for listed companies and the SEC’s AML and KYC requirements. Failure to comply with these requirements will result in a fine or the revocation of their license.

iv. Reporting & Disclosure Requirements

Institutions operating under the SEC are required to file their annual reports in accordance with the provisions of the Act 92916.

3. National Insurance Commission

The National Insurance Commission (“NIC”) is the regulatory body responsible for overseeing the insurance industry in Ghana. It was established under the Insurance Law 1989 (PNDC Law 227), but currently operates under the Insurance Act, 2021 (“Act 1061”). The role of NIC is to promote a fair, safe, efficient, and stable insurance market in Ghana17.

NIC has many functions outlined under the provisions of the Act 106118 such as:

a. Issuance of licenses to insurance entities and supervising licensees, issuing directives, directions, instructions, and guidelines to insurers, reinsurers, and insurance intermediaries.

b. Regulate and control the business of insurance in the country.

c. Approve rates of insurance premiums and commissions, provide a bureau for the resolution of complaints, and arbitrate insurance claims when disputes arise.

In the performance of its functions under the Act 106119 and the implementation of its role, NIC is required to have regard for international standards and best practices while promoting effective risk management by the licensees.

Regulatory Compliance of NIC

Individuals and institutions that operate or intend to operate in the insurance industry must comply with the following requirements:

i. Licensing and Registration Compliance

Entities and individuals wishing to engage in insurance business in Ghana must first obtain a license from the NIC. Licenses are renewed annually, and operators must meet regulatory and capital adequacy requirements set by the NIC.20. All activities must be conducted in accordance with the terms of the granted license.

It is important to note that operating without a license may lead to fines, and failing to satisfy the capital requirement or notify the Commission of same will result in the payment of GHC 12,000.00 as a penalty in that regard21.

ii. Statutory deposit

Insurance companies and institutions are required by law to deposit and maintain in an established account an amount that is at least equal to the amount specified in directives issued by NIC or an amount greater than that.

iii. Compliance with Insurance Policies and Products

All insurance products must be approved by NIC before being sold to consumers. The wording of insurance policies must also be clear, fair, and not misleading to consumers. It must also comply with compulsory insurance requirements such as the motor third-party insurance provided for in the Motor Vehicles Third Party Insurance Act, 1958 (Act 42).

iv. Reporting and Governance Compliance

Insurance companies must also submit quarterly and annual reports to NIC and ensure that they have in place corporate governance structures that align with NIC guidelines. They must also file their annual audited financial statements amongst others.

4. National Pensions Regulatory Authority

The National Pensions Regulatory Authority (“NPRA”) is the regulatory body established under the National Pensions Act, 2008 (“Act 766”) to regulate and monitor the operations of the three-tier pension scheme which consists of the mandatory basic national social security scheme (Tier 1), the mandatory fully funded and privately managed occupational pension scheme (Tier 2) and the voluntary fully funded and privately managed provident fund and pension scheme (Tier 3). NPRA is responsible for the following functions under Act 76624:

a. Ensuring compliance with the provisions of the Act, registering provident funds, occupational and personal pension schemes.

b. Approve, regulate and monitor trustees, pension fund managers, custodians and other pension-related institutions.

c. Provide standards, rules, and guidelines to ensure the effective management and regulation of pension funds in Ghana.

d. Monitor the implementation of the Basic National Social Security Scheme.

e. Charge and collect fees as they may determine and impose administrative sanctions or fines on institutions who operate within their authority.

Regulatory Compliance of NPRA

The entities which operate under the authority of NPRA are required to comply with the following regulatory requirements in accordance with the provisions of the Act.

i. Registration and Contribution Requirements

They must register with NPRA and enrol their employees in the mandatory First-Tier Social Security and National Insurance Trust Scheme (“SSNIT”) and the Second-Tier Occupational

Pension Scheme. They must deduct and remit to SSNIT and approved trustees within 14 days after the end of each month and must maintain payroll records showing pension deductions. They must also provide employees with pension contribution statements and submit same to SSNIT. Failure to pay contributions and failure to pay on time attract a 3% monthly penalty on the outstanding amount.

ii. Pension Trustees Compliance Requirements

Pension trustees who manage the second-tier occupational pension schemes and third-tier voluntary pension schemes must ensure that they are licensed by the NPRA before operating. They must also ensure the timely investment of funds in approved assets in accordance with the guidelines set by NPRA and Act 76625 and submit quarterly and annual reports on fund performance activities while maintaining accurate records of contributions and beneficiaries.

Trustees who mismanage funds or violate the investment guidelines set by the NPRA will be liable to a discretionary penalty prescribed by the NPRA, may lose their license, or face prosecution.

iii. Scheme Member Compliance Requirements

Employees and self-employed individuals are to register with a licensed trustee for the second and third-tier pension scheme and ensure that their contributions are correctly deducted and remitted. They must also monitor their pension statements to track contributions.

iv. Annual Filing & Reporting Obligations

Trustees & Fund Managers must submit an annual report to the Board within four months after the end of each financial year to give details of their activities in the preceding year to the authority.

Challenges of Regulatory Compliance in the Financial Sector

Financial institutions in Ghana face challenges that sometimes impact their operations, risk management, and overall business sustainability. Some of these challenges include the following:

a. Frequent updates and changes in regulatory requirements by authorities such as the BoG and the SEC make it challenging for financial institutions to stay current and maintain compliance with the regulatory requirements.

b. Small and medium-sized banks, microfinance institutions, and fintech start-ups often face difficulties in meeting compliance standards due to the substantial investment required for compliance audits and regulatory adherence.

c. There are usually overlapping or conflicting requirements due to the various regulatory requirements of the regulators of financial institutions.

d. Many institutions lack advanced digital systems to track transactions and monitor compliance automatically, thereby making it difficult to monitor compliance with the regulatory measures.

Strategies for Ensuring Regulatory Compliance in the Financial Sector

Despite the challenges faced by regulators of financial institutions, they can ensure that the various regulatory measures are complied with by doing the following:

a) Establishing clear compliance policies for the various institutions to adhere to.

b) Organizing training and seminars to train staff on the various compliance requirements.

c) Appointing officers to oversee adherence to the compliance measures.

d) Conducting regular audits amongst the various financial institutions to ensure compliance.

e) Introducing and implementing stricter enforcement measures to ensure that the regulatory requirements are complied with effectively.

Conclusion

In the light of the discussions above, it can be concluded that in order to operate effectively and thrive in Ghana as a financial institution there is the need to comply with all the necessary requirements of the regulators of the financial institution in Ghana and regulators must also do well to put measures in place to address the challenges faced by the business who operate within the financial institution.

By: Ama Anima Konadu,
Junior Associate
VINT & Aletheia Attorneys & Consultant