Financial Expert Float Idea of ‘Financial Watchdog Superteam’ for Ghana
In a bid to restore trust in Ghana’s financial sector and bolster its long-term stability, the idea of establishing a unified financial sector regulatory body is gaining momentum. This proposed super-regulator would encompass existing regulators, including the Bank of Ghana, the Securities and Exchange Commission, the National Pensions Regulatory Authority (NPRA), and the National Insurance Commission.
Despite these regulators being part of the Financial Stability Council, financial economist and investment banking consultant, Dr. Sam Mensah, argues that the current regulatory framework operates in silos. This approach, he contends, falls short of addressing the growing interconnectedness among various sub-sectors within the financial industry.
The proposal was discussed during a development dialogue session organized by the Institute of Statistical Social and Economic Research (ISSER), under the theme ‘Ghana’s public debt management: facts, impact and the way forward.’
Dr. Mensah emphasized that rebuilding trust in the financial sector would be a gradual process. He believes that consolidating financial sector regulation under a unified authority could offer a holistic perspective of the entire sector, effectively accounting for the increasing interdependence among its various sub-sectors.
“It has been suggested that financial sector regulation should be consolidated with a unified financial sector authority, so the regulator can have a bird’s-eye view of the entire sector that reflects the increasing interconnectedness of financial sub-sectors,” he stated. Dr. Mensah also pointed out that similar models exist globally, prompting the need for discussions on restructuring the financial sector’s architecture to enhance trust in the system.
The proposal for restructuring financial sector regulation has gained traction worldwide as countries grapple with evolving dynamics in the financial world and perceived inadequacies in existing regulatory structures.
While some may view this proposal as duplicating existing regulatory efforts, proponents argue that with a super-regulator in place, losses such as the GH¢60.8 billion recorded by the Bank of Ghana in 2022 could have been mitigated. Furthermore, delays in publishing annual reports by certain financial sector regulators could have been avoided under a unified regulatory body.
An IMF working paper from 2020 lists various benefits of such a consolidation, including enhanced reach, efficiency, and flexibility. However, the paper cautions that structural changes alone may not guarantee improved supervision, emphasizing the need to strengthen regulatory capacity as a priority.
Dr. Mensah additionally suggested that regulatory consolidation should be complemented with the introduction of a financial sector trust index and a financial sector ombudsman.
The trust index would measure the overall level of trust the public has in financial institutions, while the ombudsman would serve as an independent dispute resolution tool to assist consumers in resolving complaints against financial institutions.
Highlighting the financial sector’s heightened volatility compared to the broader economy, Dr. Mensah pointed out that empirical data suggest the financial sector is nearly three times more susceptible to shocks. Factors such as the aftermath of the financial sector clean-up and the recent Domestic Debt Exchange Programme (DDEP) have contributed to a sense of doubt in the sector’s stability.
Expressing concern, Dr. Mensah suggested that the current mistrust in financial institutions might require a generation to rectify, akin to the recovery process following the financial upheavals of the 1980s.
In conclusion, the proposal for a unified financial sector regulatory body in Ghana aims to address issues of coordination and oversight within the financial sector. It is part of a broader initiative to rebuild trust in the sector and enhance its overall stability.
However, the implementation of such structural changes must carefully consider practical challenges and complexities, with a simultaneous focus on strengthening regulatory capacity alongside any structural reforms.