FINANCIAL
REGULATION
It looks at how the activities of Financial Institutions are controlled in a Financial System so as to ensure stability.
The Bank of Ghana Act, 2002 (Act 612) defines a Financial System as “ a network of deposit taking and non-deposit taking financial institutions such as a brokerage firm, insurance company, pension fund, investment company, which carries on the business of or whose business is any of the following activities;
Taking of deposits of money from the
public repayable on demand and withdrawable by Cheques, drafts, orders or other means;
Financing of any activity by way of
creative financial assets such as loans and advances, securities, bank deposits or otherwise, than its own;
Companies dealing in shares, stocks,
bonds or other securities;
Leasing, letting or delivering goods to a
Carrying on by insurance companies of
any business other than insurance;
Collecting of money or accepting
employer contributions and paying it out for legitimate claims or for retirement benefits”
Categories of the Financial System
From the above definition the Financial
System can be categorized as follows;
Banking
Capital / Securities Market
Insurance
Pensions
Alternatively, the Financial System may be put in two main categories; Bank and Non-Bank institutions.
Function of the Financial System
The broad function of the Financial System is to mobilise funds and resources in the form of savings and deposits and to allocate them mainly in the form of capital, loans among others – intermediation.
Essentials of an efficient Financial System
These are factors that contribute to the
Financial System performing in the manner that would ensure it attain its objective.
They include;
Effective Regulation: there should be
independent regulatory bodies to regulate the activities of participants based on clearly defined regulatory processes and practices.
Supportive Legal Framework: There must be clearly defined laws which determine the rights and obligations of participants within a framework that ensures enforcement.
Supportive Financial
Infrastructure: This includes
institutions such as secondary markets (stock exchanges, bond markets) as well as systems and practices that facilitate financial transactions;
Trading and settlements systems
to ensure payment
Healthy Competition: Competitive level
playing fields as well as wide dissemination of market information to enable customers make informed choices.
Judicious mix of local and foreign
participants
Competent, honest and solvent
professionals
Variety of financial assets and instruments.
ELEMENTS OF FINANCIAL REGULATION
Effective regulation is an important element of regulation and therefore it is paramount to ascertain the elements of financial regulation.
The International Monetary Fund (IMF) has identified four (4) main elements of ensuring financial stability;
Regulatory Governance: it refers
to the capacity of the regulatory bodies to make decisions without interference, and to formulate, implement and enforce sound regulatory policies and practices.
The institutional Framework which provides the legal basis for regulatory governance involves four main components;
First there must be legislation which provides the legal basis for the establishment of an independent regulatory body.
In Ghana the Financial System is regulated by three institutions;
Bank of Ghana
Securities and Exchange Commission and
National Insurance Commission.
Secondly, the Statute must define the
objectives and functions of the regulatory body.
Thirdly, the Statute must define the
enforcement powers and capabilities of the regulatory body.
Fourthly, the regulatory body must
have power to make rules, regulations
The main principles under this element are;
Objectives of regulations
Independence and adequate resources
Enforcement powers and capabilities
Clarity and transparency of regulatory processes
External participation, such as Auditors.
Prudential Framework: it comprises
the rules, directives and regulatory requirements that set forth the structure to govern the operations of the financial firms.
They enforce the capability of financial
institutions to cover risks associated with their operations.
Minimum Capital Requirement
Credit Limits
The main principles here include;
Risk Management
Risk Concentration
Capital Requirements
Corporate Governance
Regulatory Practices: the techniques
and mechanisms for supervision and monitoring
Group-wide supervision
Monitoring and on-site inspection
Reporting to supervisors
Co-operation and information sharing
Confidentiality
Licensing, ownership transfer, and
corporate control
Qualifications
Financial Integrity and Safety
Nets
Markets (integrity and financial crime)
Customer protection
Information, disclosure and
BANKING REGULATION
Banking system is at the heart of the financial system because of the functions it performs, which includes; It allocates or channels resources
through credit decision process and market pricing to the most efficient users.
Provides a medium for receiving and payment for goods and services
Objectives of banking regulation
To ensure financial stability and stability of
individual banks and reduction of financial crime
To induce and retain market confidence by
ensuring that only honest, competent and solvent institutions and practitioners are in the system
To protect customers, investors and depositors
through regulating the range of risk assumed by entities, ensuring that adequate information is given and disclosures made to investors.
To set and maintain starts reflecting international standards.
To ensure healthy competition
The objective of banking regulation is to ensure that appropriates steps are in place to deal with basic problems of banking which includes;
Unwise investments and bad loans
Lending to individuals, industries and business without proper due diligence and without ensuring that they are capable of repayment.
Speculation and risky dealings in foreign
currencies and futures instruments
Inadequate security
How the Bank of Ghana regulates
the Banking System
Licensing
Prudential regulation
On-site and off-site examination
Powers of investigation
Power to give directives and make
regulations
Power to produce guidelines
Powers of enforcement
Sanctions for financial crime
THANK YOU
AND
GOOD LUCK