Financial sector cleanup: Poor Corporate Governance led to irresponsible risks – BoG

The Bank of Ghana (BoG) has reiterated that poor corporate governance significantly contributed to the excessive and irresponsible risks taken by some financial institutions, necessitating the financial sector clean-up in 2017. The central bank emphasized that this measure was crucial to secure depositors’ funds and protect the financial sector.

To sustain the improvements achieved from the clean-up, the BoG issued the Corporate Governance Directive in 2018 and the Fit and Proper Persons Directive in 2019. These directives aim to strengthen and embed sound corporate governance practices in Regulated Financial Institutions (RFIs) and reinforce the BoG’s gatekeeping role in the financial sector.

“To enhance governance disclosure practices by RFIs, the BoG further issued the Corporate Governance Disclosure Directive in 2022, aligning with Pillar III of the Basel Capital Accord, relating to regulatory and public disclosures,” stated the BoG in a statement issued on July 11, 2024.

The statement reaffirmed that significant shareholders, directors, and key management personnel must always be of good repute and possess sufficient knowledge, skills, and experience to perform their duties in line with the Fit and Proper Persons Directive of 2019.

The Fit and Proper Standards consider whether a person has been a director of, or directly involved in the management of, any company or institution whose license was revoked, or is being or has been wound up by a court of competent jurisdiction or other authority within or outside Ghana. The standards also assess if a person has been involved with a financial company that has gone into receivership, insolvency, or involuntary liquidation.

“To further promote the safety and soundness of RFIs, the BoG is issuing this notice to remind RFIs of their obligation under the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) and the Fit and Proper Persons Directive, 2019, to ensure the continuous fitness and propriety of significant shareholders and persons serving as directors and key management personnel of RFIs,” the statement emphasized.

The BoG reminded the public that individuals directly implicated in the 2017-2019 financial sector clean-up, as well as all previous directors of failed banks and SDIs since the enactment of the Banks and Specialised Deposit-Taking Institution Act, 2016 (Act 930), are not qualified to hold key positions under the fit and proper persons criteria.

“Banks, Specialised Deposit-taking Institutions (SDIs), and the general public are to note the above for their information,” the statement concluded.