Question

(a) Corporate Governance Directive is issued under the powers conferred by section 56 and 92(1) of the Banks and Specialised Deposit Taking Institution Act 2016 (Act 930). In the light of the above statement, discuss the Corporate Governance Directives by Bank of Ghana in

(i) Appointment of Directors

(ii) Manager of Bank

(iii) Key Management Personnel ​​​​

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(b) In 2017 and 2018, a number of banks have been closed down or merged or by the Bank of Ghana (BoG). Depositor’s felt threatened. What scheme is there to protect these depositors and what are the rationale behind such a scheme? Explain how it could lead to financial stability.​​​​​​

Answer 1

Hi Friend,

Please refer to the solution below.

1. As per CORPORATE GOVERNANCE DIRECTIVE 2018

Directors’ Appointments and Managing Director/Chief Executive Officer Tenure

1. The procedure for appointment of directors to the Board shall be formal and transparent and shall conform to the Directive issued by the Bank of Ghana on fit and proper persons.

2. The tenure of the Managing Director/Chief Executive Officer of a Regulated Financial Institution shall be in accordance with the terms of engagement with the Regulated Financial Institution which shall be subject to a maximum of twelve (12) years. Such tenure may be split into three (3) terms not exceeding four (4) years per term.

Appointment of Bank Manager

As per CORPORATE GOVERNANCE DIRECTIVE 2018, The manager and KMP will followsame procedures.

“Key Management Personnel” means the chief executive officer or managing director, deputy chief executive officer, chief operating officer, chief finance officer, Board secretary, treasurer, chief internal auditor, the chief risk officer, the head of compliance, the anti-money laundering reporting officer, the head of internal control functions, the chief legal officer, the manager of a significant business unit of the a Regulated Financial Institution.

Appointment of Key Management Personnel

1. Every Regulated Financial Institution shall submit to the Bank of Ghana before it appoints a Key Management Personnel, a comprehensive report on the due diligence conducted on proposed nominees as Key Management Personnel. This submission shall be made in conjunction with the requirements under of Section 60 of Act 930.

2. Where a director or Key Management Personnel associated with the management of an institution whose licence has been revoked by the 17 Bank of Ghana is to be appointed by a Regulated Financial Institution, the Bank of Ghana may exercise its discretion on whether to approve such appointment after hearing representations made by the appointee.

2. Scheme introduced to protect depositors:

Ghana’s deposit protection scheme (like those of many other jurisdictions) is designed to protect small depositors from losses that the depositors may suffer as a result of the depositor’s financial institution going under (i.e. in the event where the bank’s license is revoked or a liquidator is appointed over the assets of the bank). According to the Ghana Deposit Protection Act, 2016 (Act 931), Depositors with banks cannot recover more than GHS6,250 of whatever amount they had in their accounts. And in the case of specialized deposit-taking institutions, a depositor cannot recover more than GHS1,250. The coverage limits are expected to be revised every three years to take account of economic conditions prevailing in the country and data concerning the development of insured deposits.

The operation of a functional deposit protection scheme was expected to operate in tandem with the Banks and Specialized Deposit Taking Institutions Act, 2016 (Act 930). That explains why these two Acts of Parliaments were passed around the same time. In so many ways, Act 931 was intended to dovetail into Act 930. The deposit protection scheme was intended to be a safety net for depositors who save their monies with the banks. Act 930 makes the membership of the Ghana deposit protection scheme a condition precedent to the issue of licences[1]. And in the same vein, when a bank’s license is revoked, the deposit protection scheme is to be notified upon the commencement of liquidation and receivership proceedings[2]. A bank or specialized deposit-taking institution is prohibited from declaring or paying dividends (whether interim or final) unless the bank can prove that it has satisfied every obligation under the Deposit Protection Act, 2016 (Act 931) and paid any outstanding premium owed the Ghana Deposit Protection Corporation[3]. Act 930 also requires the Bank of Ghana to update and inform the Ghana Deposit Protection Scheme of anytime a bank is on the verge of failing.