AT a time when financial sector regulators are merging weaker institutions into stronger ones, a financial economist is advocating that the Bank of Ghana (BoG) and its three sister regulators should be consolidated into two new but stronger authorities to help smoothen out duplications and enhance regulation of financial institutions.
Dr Sam Mensah, who consults for governments in Africa, is convinced that in their current state, the four financial sector regulators – BoG, the Securities and Exchange Commission (SEC), the National Pensions Regulatory Authority (NPRA) and the National Insurance Commission (NIC) – were “duplicating the administrative structures needed to carry out regulation of their sectors.”
Consequently, he said in an article that the country should be bold enough to “dismantle its long-established institutions and processes” and consolidate them into a proposed Prudential Regulatory Authority (PRA) and Market Conduct Authority (MCA) to take up the current responsibilities of the ‘gang of four’.
He called “for regulatory unification from a cost reduction perspective.”
Dr Mensah has consulted for the Ministry of Finance under past and current administrations and is currently the Chief Executive Officer (CEO) of SEM Capital Advisors.
Making a case for his position in the more than 2,600-word article due to be published in the Daily Graphic, he said the current structure “makes financial regulation costly for the country”.
“The cost of regulation can be significantly reduced by concentrating the administrative overhead in the PRA and the MCA instead of the current four regulators that we have,” he said.
Once established, Dr Mensah, who is the Chief Executive Officer (CEO) of SEM Capital Advisors, said the PRA should be given the prudential regulatory duties of each of the four regulators, while the MCA takes up the market conduct responsibilities.
The BoG can then been retained but as a pure monetary authority – minus its banking supervision department – to concentrate only on ensuring financial stability in fulfilment of the requirement of the 1992 Constitution, he said.
But “is Ghana ready to make such a massive transformation of its financial regulatory architecture,” Dr Mensah, who is also the Chief Executive Officer of SEM Capital Advisors, asked.
He was optimistic that “any major change would require strong leadership by government as it will result in the dismantling of long-established institutions and processes as regulation is consolidated.
“Established institutions will likely resist changes that will undermine privileged positions,” he added.
Although not the first, Dr Mensah’s proposal could set in motion an intellectual debate that can lead to an overhaul of financial sector regulators in the country.
It comes at a time BoG and its sister regulators are consolidating weaker regulated institutions into stronger ones to help deliver efficiency, reduce systemic risks and repose confidence in the financial services sector.
In the banking sector for instance, BoG has since consolidated nine banks under far-reaching reforms and recapitalisation exercises that have reduced bank numbers to 23.
The NIC has also confirmed plans to roll out a recapitalisation exercise that could see the stated capital of reinsurers rise by more than threefold and possibly instigate mergers in an industry home to 143 players.
In the capital and pensions business, where SEC and NPRA have oversight responsibilities, players are adjusting to the systemic risk and contagion emanating from actions in the banking sector.
Dr Mensah said this ‘silo’ kind of regulation had outlived massive growth in the financial services industry and now an avenue for firms and individuals to exploit the inherent weaknesses.
“The system was not deliberately designed. Indeed, the current regulatory architecture may be considered a historical accident,” he said, explaining that as each subsector developed, a regulatory agency was established to regulate the sector.
“Relatively, little attention was paid to the linkages in the financial sector, thus leaving the regulators to operate relatively independent of each other.”
“However, Ghana’s financial system has become much larger with an increasingly wide variety of institutions and financial products and interlinkages between subsectors,” he said.
He mentioned regulatory arbitrage, financial conglomeration and increased systemic risk as some of the challenges that Ghana’s “historical accident” regulatory system produced.
These loopholes, he said, had been exploited by institutions in the past, leading to challenges that were evident in the influx of fund managers as against savings and loans companies, financial sector conglomerates, whose subsidiaries operate in almost all the four subsectors, introduction of complex products and spread in systemic risks.