- SEC Bets on Stronger Regulation to Turn Ghana’s Capital Market Into Economic ‘Lifeblood’
Ghana’s Securities and Exchange Commission has put investor protection ahead of the commercial interests of market operators where the two collide, setting out a regulatory philosophy that could shape the next phase of the country’s attempt to transform its relatively shallow capital market into a larger source of long-term financing.
Mensah Thompson, Deputy Director-General of the SEC, said the regulator faced what he described as a “double-edged sword”: imposing sufficiently strong supervision to protect people’s savings while ensuring that the cost and intensity of regulation do not suppress innovation, investment and market expansion.
“When there are situations” where the interests conflict, he said, “definitely the investor’s interest will take precedence”.
“Financial systems, financial markets everywhere in the world thrive on trust and confidence,” Mr Thompson said during a NorvanReports–Economic Governance Platform X Space. “If there is no trust and confidence, it’s very easy for the market to collapse.”
That principle goes to the centre of an increasingly important policy debate in Ghana.
The SEC is seeking more resources to strengthen regulation at the same time as fund managers and investors are questioning the cost of new levies, particularly charges based on assets under management. The result is an uncomfortable trade-off: effective supervision has a cost, but increasing the cost of investing can itself discourage the participation required to deepen the market.
Mr Thompson argues that investor protection must remain the starting point. “Our primary mandate is simple: to protect investors,” he said.
That obligation extends across a broad financial architecture. The Commission supervises institutions and activities, including the Ghana Stock Exchange, asset-management companies, broker-dealers, issuing houses, transaction advisers and the Central Securities Depository, while its responsibilities are expanding as Ghana develops a regulatory regime for virtual and tokenised assets.
The breadth of that mandate means the SEC is increasingly being asked to supervise markets that are simultaneously becoming more complex and technologically sophisticated.
But the Commission does not want to be viewed purely as an enforcement agency. It is also attempting to position capital markets as a development tool capable of addressing one of the structural weaknesses in Ghana’s financial system: its heavy dependence on banks for financing.
“The capital market in other jurisdictions is the lifeblood of the economy,” Mr Thompson said. “Unfortunately in Ghana, we are more dependent on the banking side because that’s what a lot of people know.”
Banks predominantly mobilise deposits that are often shorter term than the financing needs of large infrastructure projects, factories and businesses investing in long-lived productive assets. Capital markets can potentially bridge that maturity gap by connecting long-term savings with companies and projects requiring patient finance.
Equities can provide permanent capital. Corporate bonds can finance expansion over longer periods. Collective investment schemes can aggregate household savings, while pension funds and other institutional investors can provide substantial pools of domestic capital.
Mr Thompson pointed to pension assets of roughly GH¢120 billion as evidence that Ghana already has significant domestic savings that could potentially be channelled more effectively into productive investment.
He argued that a better structured domestic capital market could also reduce the government’s historical reliance on expensive external borrowing.
“There are a lot of projects, there are a lot of needless borrowing that the government does I mean external borrowing that the government does at high interest rate with very ridiculous conditions that if our systems are structured properly and the capital market is properly positioned, the capital market will be able to provide those resources for those projects.”
The argument is particularly relevant after Ghana’s recent experience with sovereign debt distress.
A country capable of mobilising deeper pools of domestic long-term capital may have greater financing flexibility than one repeatedly dependent on international bond markets and external creditors.
But simply accumulating pension and investment assets does not automatically solve that problem.
Domestic capital must be channelled into productive assets without creating excessive concentration in government securities or forcing pension funds into projects that do not satisfy appropriate risk and return requirements.
That is where regulation becomes essential. A deeper capital market without effective supervision could create larger pools of savings vulnerable to mismanagement, related-party transactions, weak governance and outright fraud.
Ghana already has experience of the damage that follows when investment institutions fail and households lose access to funds they believed were safely managed.
Trust, once lost, can take years to rebuild. Yet the opposite risk also exists. Regulation that becomes too expensive, cumbersome or unpredictable can reduce returns, increase operators’ costs and discourage new entrants.
The debate surrounding the SEC’s new levies illustrates that tension. Some fund managers and investors have questioned why regulatory charges should be applied against assets under management regardless of whether those investments generated profits.
Mr Thompson rejects the premise that regulation should be financed only when an investor earns a positive return.
“We are not interested in the outcome of your investment activity,” he said, drawing a distinction between a regulatory charge and a tax imposed on investment gains.
From the SEC’s perspective, supervision continues whether an investment appreciates or falls in value. Compliance monitoring, market surveillance, inspections and enforcement do not disappear because returns are weak.
Investors, however, are likely to judge the matter differently. Their concern is ultimately about net returns.
Every additional fee whether charged by an asset manager, custodian, exchange, regulator or another intermediary reduces the amount eventually accruing to the investor.
That means the legitimacy of stronger regulatory financing will depend not merely on the SEC’s legal authority to impose charges but on whether investors can see an improvement in regulatory outcomes.
A better-funded SEC should mean faster detection of misconduct, stronger surveillance systems, more rigorous supervision of fund managers, quicker resolution of complaints and earlier intervention before weaknesses become failures.
Without those results, the levy risks being perceived simply as another layer of cost.
Mr Thompson acknowledged the accountability question, pointing to the SEC’s audited financial statements and annual reporting as mechanisms through which its activities can be scrutinised.
“The Ghanaian investor will be better off with a strong regulator,” he said.
That proposition is difficult to dispute in principle. The more important question is what constitutes a strong regulator.
Strength cannot be measured only by the size of the SEC’s budget or the amount of levies it collects. It must ultimately be demonstrated through regulatory competence, independence, enforcement consistency and the ability to identify risks before they become expensive failures.
Ghana will not build a deeper capital market simply by registering more operators or introducing new products. Investors need confidence that securities are properly valued, assets are adequately custodied, disclosures are reliable and firms entrusted with their money are being supervised effectively.
At the same time, operators need a regulatory environment in which compliance obligations are proportionate and predictable enough to permit commercially sustainable businesses.
That is the balance the SEC now has to establish. Mr Thompson said engagement would remain central to the Commission’s approach.
“We like to listen to the market, and everything that we do, we like to engage,” he said.
That willingness will be tested as the levy regime takes effect and the Commission assesses whether its design is producing unintended consequences. If higher regulatory costs cause investors to withdraw from collective investment schemes, discourage new market entrants or accelerate consolidation among asset managers, the SEC may have to decide whether the additional revenue gained outweighs the effect on market participation.
If, on the other hand, the resources allow the Commission to strengthen enforcement, modernise surveillance and restore confidence among households still cautious about investment products, the levy could ultimately support the deeper market the regulator wants to create.
Ghana needs long-term domestic capital for infrastructure, industrialisation, housing, energy, technology and business expansion. An economy that cannot efficiently convert its own savings into productive investment will continue to depend excessively on banks, government borrowing and foreign capital.
But savings will only move into capital-market products at scale if investors believe the institutions handling their money can be trusted.
That is why Mr Thompson’s insistence on putting investors first is more than a regulatory slogan. It is a statement about the foundation on which Ghana’s capital-market ambitions must ultimately rest.
The SEC is effectively asking investors and market operators to accept the cost of stronger supervision today in return for a safer, deeper and more credible financial market tomorrow.
