Also, the central bank has directed the full disclosure of conflict of interest guidelines by such institutions to tame adverse impacts of delayed loan repayments.

The rules are part of new corporate governance directives issued by the Bank of Ghana to sanitise the financial sector.

Undoubtedly, the directive comes on the back of recent developments in the banking sector where directors and CEOs have been cited for not abiding by standard corporate governance rules.

To stop the issuing of unchecked loans to interested parties of directors of banks for instance, the Bank of Ghana wants such Directors to disclose to their boards, their professional, investment and any other interest in proposed credit facilities to be disbursed at any given period of time.

Portions of section 20 of the Banking Business- Corporate Governance Directive 2018 read,

“A person, before assuming office as a director or key management personnel of a regulated financial institution, to declare to the board of directors of that regulated financial institution and the Bank of Ghana; 

1. a) the professional interests of that person or the office that person holds as manager, director, trustee or by any other designation; and
2. b) the investment or business interests of that person in a firm, company or institution as a significant shareholder, director, partner, proprietor or guarantor, with a view to prevent a conflict of interest with the duties or interests of that person as a director, or key management personnel of the regulated financial institution.”

Similarly, the board of a financial institution shall ensure that transactions with related parties (including internal group transactions) are reviewed.

This is among others to assess risk and apply the appropriate restrictions like enforcing non preferential terms that guide the exposure limits for loans to related parties and staff.

“The board shall ensure that transactions with related parties (including internal group transactions) are reviewed to assess risk and are subject to appropriate restrictions (e.g., by requiring that such transactions be conducted on non preferential terms/basis) and applicable legislation and other requirements such as those prescribed under sections 67 to 70 of Act 930 regarding exposure limits for loans to related parties and staff,” a portion of the Directive stated.

In addition, a regulated financial institution is expected to seek prior written approval of the Bank of Ghana before it appoints a CEO or Deputy CEO.

Moreover, the Bank of Ghana’s directive is asking all banks to as a matter of compliance, have formal written conflicts of interest policy and an objective compliance process for implementing the policy.

Among others, the conflict of interest policy shall include; the duty of the director to avoid possible activities that could create conflicts of interest.

Also, a review or approval process for directors to follow before they engage in certain activity so as to ensure that such activity will not create a conflict of interest.

And, the duty of the director to disclose in addition to section 59 of the Act, any matter that may result, or has already resulted in a conflict of interest.

72. The board should have formal written conflicts of interest policy and an objective compliance process for implementing the policy. The policy should at the minimum include;

a) the duty of the director to avoid possible activities that could create conflicts of interest;

b) a review or approval process for directors to follow before they engage in certain activity so as to ensure that such activity will not create a conflict of interest;

c) the duty of the director to disclose in addition to section 59 of the Act, any matter that may result, or has already resulted in a conflict of interest; 

d) the responsibility of the director to abstain from voting as prescribed under section 59 of the Act and on any matter where the director may have conflict of interest;

e) adequate procedures for transactions with related parties to be made on a non-preferential basis; and

f) the way in which the board will deal with any non-compliance with the policy.

 (ii) The board shall ensure that appropriate public disclosure is made in the annual accounts and information relating to the policies of the regulated financial institution on conflict of interest and potential material conflicts of interest as provided to the Bank of Ghana on quarterly basis.

(iii) The Board shall maintain an up-to-date register for documenting and managing conflict of interest situations in the regulated financial institution.

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By: Pius Amihere Eduku/citibusinessnews.com/Ghana

The post BoG stops unwarranted loans to ‘cronies’ with new corporate rules appeared first on Citi 97.3 FM - Relevant Radio. Always.

As a result, no one person shall assume two top positions in any regulated financial institution.

These are but a few of the strong words contained in the Bank of Ghana’s new banking business – corporate governance directive.

The document comes barely a week after the central bank announced yet another major decision involving the take over of Unibank by the Bank of Ghana, over corporate governance issues.

According to the Bank of Ghana, the directive is in fulfillment of Section 92(1) of the Banks & Specialised Deposit Taking Institutions Act , 2016 (Act 930).

Among others, the corporate governance directives seeks that the regulated financial institutions adopt sound corporate governance principles and best practices, promote and maintain public trust and confidence in regulated financial institution as well as minimize the possibility of regulated financial institution failures.

A major highlight of the corporate governance directive is the central bank’s stance on separation of powers.

Section 32 and 33 of the directives outlines the mode of selection and occupancy of the MD/CEO as well as Board Chairman as,

32. “There shall be a clear division of responsibilities at the top hierarchy of the regulated financial institution. The positions of the Board Chair and the Managing Director/Chief Executive Officer shall be separate. No one individual shall have unfettered powers of decision in any regulated financial institution and therefore no one person shall combine the two (2) top positions in any regulated financial institution at the same time. The two (2) top positions of Board Chair and Managing Director (MD)/CEO in a regulated financial institution shall not simultaneously be occupied by foreigners. One of these positions shall be occupied by a Ghanaian national.”

32. No two (2) related persons shall occupy the positions of Chair and MD/CEO or Executive Director and Chairman in a regulated financial institution.

In addition, the tenure of the Managing Director/CEO of a regulated financial institution shall be a maximum of twelve years.

This could be split into three terms not exceeding four (4) years per term.

Directors on the other hand, shall have a maximum tenure of three (3) terms of three (3) years per term.

Meanwhile, a Board of any financial institution shall have two (2) board subcommittees, namely: an Audit Committee and a Risk Committee both of which shall be chaired by independent directors.

The Audit Committee shall have oversight of the regulated financial institution‘s internal and external audit functions.

On the other hand, the risk committee shall be responsible for advising the board on the financial institution‘s overall current and future risk tolerance/appetite and strategy of the regulated financial institution for various risks including Anti money laundering or CFT risk and for overseeing senior management‘s implementation of the risk strategy.

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By: Pius Amihere Eduku/citibusinessnews.com/Ghana

The post BoG enforces separation of powers with new directive appeared first on Citi 97.3 FM - Relevant Radio. Always.