Dua a Kwaku Ananse atena aseɛ anya owuo no, Ntikuma ntena aseɛ ntɔ nko!

(The tree that killed Kwaku Ananse when he sat under it, Ntikuma (Kwaku Ananse’s less cunning and less intelligent son) will not even sit under and doze)

There is a popular proverb that has different variations around the world. The version I find appropriate is the one attributed to the Martinique people, which says that “If you see your neighbour’s beard on fire, water your own”.

This is an apt directive to investment industry regulators (Securities and Exchange Commission (SEC) and National Pensions Regulatory Authority (NPRA)), the National Insurance Commission (NIC) and industry leaders in Ghana, in light of the recent turmoil in the financial sector.

Like the proverbial ostrich that buries its head in the sand, forgetting that the rest of its body is still exposed to the perils of the weather it is hiding from, so have we all buried our heads over the years whiles many unsavoury and unthinkable practices sully our financial sector.

For those that may be unaware of the series of events that have hit the Ghanaian financial sector over the past year, let me summarize the key events so far:

  1. Over the past year, seven seemingly sound commercial banks have had their licenses revoked in the wake of unbelievable operational and regulatory failures that have cost taxpayers hundreds of millions of Ghana Cedis and the loss of thousands of jobs, incomes and wealth.
  2. Minority equity investors in one of the banks under liquidation were left holding the short end of the stick when they woke up on the fateful morning of September 14, 2017 to the news that their equity stake was virtually worthless with seemingly no warning.

Accusations were levelled against the Ghana Stock Exchange (GSE) for failing to enforce its own rules, under the belief that, if it had exercised its duties effectively, it would have served as a signal to investors of the impending doom. But can the exchange be blamed entirely for this? Probably not, because the warning signs were there, but many failed or chose not to take notice in the expectation that ‘this too shall pass’.

But to give the GSE some credit, on January 3, 2017, they halted trading in the shares of UT Bank for non-submission of financial results. Even though that halt was lifted subsequently without the rectification of the deficiency that led to the halt, it was still a clear signal to those that cared to notice that all was not well.

  1. Ghana has become a breeding ground for charlatans with various get rich quick schemes, preying on the greed and vulnerability of a people desperate for success. Some of such schemes have been going on in the full glare of regulators in the name of both religion and seemingly ‘legitimate’ business.

The failure of regulators to act and clamp down on these activities have served to legitimize them to unsuspecting consumers and helped to entrench their position to the point where any eventual clampdown would have very serious and far-reaching consequences for the ‘investors’ and the financial system at large.

In the wake of these crises, much of the blame has been aimed at the regulators, for failing to discharge their duties diligently. And rightly so, to a large extent. But the blame cannot be theirs alone.

From regulators to industry professionals and consumers of financial products and services; we have all contributed to the crises in the banking and financial sector at large.

The recent sanitization of the banking sector, although overdue, nevertheless, has left in its wake many casualties that could have been avoided if we had just watched, learned and acted.

Many of the reforms that have subsequently been implemented have however been regulator initiated, characterized by a feverish churn of regulations from the Central Bank, Securities and Exchange Commission, Ghana Stock Exchange and recently, the National Insurance Commission’s due diligence initiative on insurance firms.

Why Regulation is Not Enough

  1. The increasing regulation is not bad, God knows there were several gaping regulatory holes that needed to be filled. But this one-sided approach does not tackle the problem in its entirety and leaves room for the ‘sufficiently motivated’ to find wiggle room to adhere to just the letter of the laws rather than the spirit.
  1. Another critical reason why regulation alone is not enough is that, regardless of how strict the law or regulation is, regulators still need timely and accurate information from the regulated to discharge their duties effectively leaving room for certain unethical players to find ways to circumvent and hide critical issues from regulators until they become too big to hide.
  1. There is a limit to which ‘coerced’ compliance (regulation) can go. The increasing regulation also goes together with rising enforcement costs that may far outweigh any gains that the industry churns out; and, more seriously, it can serve as a deterrent to innovation and growth of the industry.


What is the Optimal Approach

A better approach is one that puts all hands to the wheel of change. It is an approach that strikes the optimum balance between regulation and a self-directed drive on the part of the regulated to achieve the much higher ideals of ethical behaviour and adherence to industry-led best practices and professional standards.

Any lawyer will tell you that when the burden of a law is too costly for the regulated, the human tendency is to adhere to the letter, rather than the spirit of the law. This tendency can lead to undesirable outcomes and unintended consequences from those that will be ‘sufficiently motivated’ to find ways to reduce the burden and cost of the prohibitive regulation.

It is only when the regulated, holds itself to much higher professional ethics, standards and personal values that the desired outcome can be achieved, and even exceeded. When you have ethical players, the industry tends towards self-regulation where the players become each other’s keeper and the regulations become virtually useless.

Such a scenario will lead to a better outcome for the entire industry because:

  1. Time and the bulk of resources of  the regulators will be better used dialoguing with the industry to come out with growth-inducing and transformative policies and strategies, rather than spent on resource intensive and time-consuming compliance checks
  2. Consumer confidence and trust will grow and industry assets with it
  3. Professionals and professional firms will grow and accumulate more wealth as client confidence and wealth grows
  4. The entire economy benefits from the spillover effects of a vibrant financial sector

The Investment Industry

Those of us in the investment sector (capital market and pensions) will be sadly mistaken if we hold even an iota of belief that this crisis is a problem of the banking sector alone.

The banking and investment sub-segments of the financial system especially, are so intricately linked that, we can already feel some of the pain from the banking sector spillover. It will be extremely foolhardy for us in the investment segment to fail to capitalize on this opportunity to ‘clean house’.

If we fail to do this, I am afraid that posterity will judge us severely and brand us incompetent, and rightly so, for failing to take a cue from the fiery hot flames that have engulfed the beard of our neighbour, to water our own beard.

Where and how do we start?

Fortunately or unfortunately for us (depending on whether you are glass half full or empty kind), we only need to look to recent occurrences in the banking sub-sector and the wider financial sector; identify the precipitating issues underlying these occurrences and come up with solutions that will resolve these issues in the investment sub-sector.

Indeed, it is quite unnerving to observe that the precipitating factors underlying the banking sector crises, so closely mirror the challenges in the investment sector that, if these factors were personified in Narcissus, they would have gazed at their reflection in the river Styx with such intensity and admiration as to suffer the same fate. 

What Can We Learn From the Banking Sector Crises

Scouring through the available information that has since come to light, as well as the many expert analysis that has followed, we can extract several key precipitating factors underlying the crises. These factors can be attributed to each of the participants within the industry and include:

A. Regulators

  1. Indiscriminate issuance of licenses to all and sundry on the premise that once the prospective licensee firm has met the minimum regulatory requirements there is no reason not to issue the license. This approach failed to consider the broader and more serious impact that the increasing number of licensed firms would have on regulatory oversight ability, industry growth, size, competitiveness and the ability of each new firm to rake in reasonable and sustainable returns to survive and thrive.

The consequence has been the increased number of questionable practices that some of such firms have resorted to in a misdirected bid for survival at all costs, after receiving these licenses.

  1. Under-resourced Compliance Departments, characterized by; inadequate number and ill-equipped workforce falling short of the considerable and increasing level of sophistication and load of the compliance tasks at stake; lacklustre and downright questionable and unethical handling of reported compliance infractions; and ineffective and/or inadequate supporting systems.
  1. Failure to enforce existing regulations. Indeed, a good number, if not all, of the current crises could have been avoided if regulators had simply been more effective at enforcing the existing regulations. This is a situation that is unfortunately not limited to these crises, but one that characterizes our general attitudes as a nation. A key contributing factor to this is the inadequacy of resources mentioned earlier, but the other and probably more important one has been a lack of will due to political expediencies.
  1. Failure of regulations to keep up with industry changes. Several much-needed guidelines were non-existent or outmoded, at best. This was not only because regulators failed to issue new guidelines at the speed of industry innovation, but largely a result of the fact that many of the underlying legislation is in such restricted form that the regulators need to keep going back to the legislature to amend very simple clauses but with far-reaching impact on their ability to discharge their duties effectively. And we know how time-consuming, costly (many wheels that need to be oiled) and bureaucratic even a simple change can be. By the time the regulator obtains the authorizing amendment, the damage it sought to avert would have already occurred.
  1. Ineffective handling of regulatory creeps to minimize the costs of regulatory arbitrages by unethical players. The lack of coordinated and collaborated action between regulators of the three segments of the financial sector (banking, investment and insurance) points to either a denial of the strong linkages between all segments of financial services sector; or, worse still, to a much more dangerous jurisdictional or turf war.

This lack of coordination has contributed to the crises in the wider financial sector from abuses by certain firms that capitalize on these ‘regulatory grey areas’ and find innovative ways to structure their operations to elude regulations for any one segment of the sector, whiles regulators haggle over whose duty it is to act.

The result of these failures has been the cloud of embarrassment that is hanging over the head of regulators because of their failure to act timeously or at all, when required of them, and at worst, their failure to even detect many of the egregious violations early enough, to institute preemptive measures that would have considerably slashed the number of and reduced the magnitude of the violations that have since come to light.

B. Industry Professionals and Firms

  1. Questionable and Unethical Behavior – Many professional firms have and continue to find innovative ways to mislead regulators or worse, provide false and misleading information about their operations, products and resources
  2. Lack of adherence to recognized industry best practices and professional standards – many professionals are unwilling to adhere to recognized industry best practices because of the misplaced fear of looking ‘uncompetitive’ to consumers when they do the right thing
  1. Fiduciary Duty Breaches and weak corporate governance structures and systems – many corporate managers have failed and continue to fail in the discharge of their duties as fiduciaries, exercising the appropriate duty of care and prudence because of their focus on self-interest in pursuit of personal gain.
  1. Failure to disclose material information – Many apparent and perceived egregious and undisclosed conflicts of interests have coloured the judgment of key personnel of firms to the detriment of the institutions managed and ultimately threatened or wiped out the financial wealth entrusted to them by their clients and investors.
  1. Failure to provide timely and quality information about the performance of investments, products and the state of affairs of the institutions to enable clients, prospective clients and investors assess the values of and make informed decisions about the state of their investments.

C. Consumers

  1. Unhealthy appetite for undesirable levels of selfish gains (greed) – Human greed is a characteristic that can not be fully eliminated. This greed has blinded many to the enormous risks inherent in the schemes they subscribe to in the face of all the red flags that a simple ‘prick to the conscience’ will flash at them.
  1. Inadequate understanding of the characteristics of financial products and the nature of operations of financial services firms, leading to the unintended assumption of undue and unrewarded institutional risk. Some investors or financial services consumers are simply not equipped to understand the nature of the products they purchase or invest in and trust and rely solely on the skills and integrity of the ‘professionals’ and professional firms they deal with to make the right choices for them. Many of such have fallen victim to professionals who failed to discharge these duties in ethical and prudent ways, leading to loss of their hard-earned monies.
  1. Lack of awareness of their rights as consumers in order to know what to demand of industry – many consumers of financial services have no idea what their rights are as consumers and investors and often feel helpless and unaware of where to seek redress when aggrieved.

The Way Forward for the Investment Industry

It is reassuring to note that (although some may say late, better than never) regulators in the investment sector have feverishly been at work on various guidelines and reforms that will strengthen the existing structures and improve their detection and enforcement will and capabilities.

But more importantly, there must be a stronger drive to push professionals and professional firms to comply with recognized industry best practices and standards which act as essential complements to regulations.

Overall, key areas that need to be addressed and possible ways to do that are as follows:

  1. Unified financial services oversight body or task force comprising all three sector regulators with the power to halt operations of organizations that flout any law even as they try to figure out internally, which sub-regulatory department to lead the required investigations
  1. The basis for the issuance of licenses must move beyond mere considerations of financial and professional capacity to include regulatory oversight capacity as well as industry needs and marginal impact analysis that is informed by the current economic state and projected strategic goals for the industry
  1. Serious consideration for segmenting licenses and associated qualifying requirements, based on the intended business objects of the prospective licensees, instead of the current one-size-fits-all approach
  1. We must institute corporate governance codes, not only for listed companies but for all public companies and financial services industry firms because of the far-reaching impact of their activities on the wider economy
  1. Strive for a high level of awareness, fiduciary responsibility and high duty of care among corporate executives, oversight boards as well as service providers like auditors and legal advisors
  1. Institute well-functioning whistle-blowing systems and mechanisms to encourage reports by any company officer or client privy to information that would have serious consequences if not reported to the regulator in question and which have been intentionally hidden by other firm officers
  1. ‘Encouragement’ of regulators to industry leaders and self-regulated industry organizations to push for the adoption of recognized industry ethical codes, standards and best practices
  1. Intensified investor education about financial services and consumer rights from the ground up and across all walks of life. The health and growth of the industry can only be achieved fully if the consuming investors are knowledgeable of the full range of their rights, responsibilities and options. They then will demand the best from the professional and professional firms and cause them to start striving to align their operations with best practices and ethical standards to stay competitive.
  1. Expanded disclosure requirements for public companies and regulated financial institutions about the firm, its products and relationships, including disclosures provided in financial reports
  1. Complete overhaul of the current curriculum used to train our professionals and to make it more relevant and progressive with a strong emphasis on ethics and best practices. Regulators must also recognize and encourage self-led quests by individual professionals for specialized and higher qualifications as well as a requirement for some minimum continuing education prior to renewal of licenses for professionals.
  1. Well-structured and transparent complaints handling and adjudication systems that are timely, prominently displayed and clearly communicated to consumers/clients and consistently enforced by regulators

These, together with the optimal level and pace of regulation, will propel the investment industry to exceed the goals that regulation alone will woefully fall short of even hitting the mark.

We Do Not Need to Reinvent the Wheel When It Comes to Ethical Codes, Best Practices and Standards for the Investment Industry

Treasure Trove of Globally Recognized and Applicable Codes and Standards

When it comes to best practices, codes and standards for the investment industry, we do not have to reinvent the wheel. Many countries have gone through the same crises and developed internationally applicable best practices, codes and standards that can be quickly adopted, adapted and complied with across all segments of the financial services firms and their professionals.

When it comes to the investment industry, one institution that has been at the forefront of this charge is the CFA Institute and its collection of globally applicable codes and standards, widely considered the gold standard in the global investment industry.

So, a good place to start, for us in the investment industry, is the CFA Institute Codes and Standards.

Dua a Kwaku Ananse atena aseɛ anya owuo no, Ntikuma (Kwaku Ananse’s son) ntena aseɛ ntɔ nko! 


ɛfutuo nsakyera onipa gye sɛ nsɔshwɛ (Human beings only change from their own trials and experience rather than wise counsel)

The question is whether we are ready to be as wise as Ntikuma or whether we would rather learn from our own experiences with its attendant loss of wealth, time and investor confidence.

Is it not far wiser to learn from the experience of others when available?

This wiser choice will position us, the current generation at the helm of affairs, to attain the heights that great men strived and missed, because, unlike such men and women before us that had no experience to learn from and so had to lose precious time and resources to experience, learn and then move to the next level; we can jump several steps and save valuable resources that can only help us to reach greater heights for our collective wealth and growth and to leave a better legacy for the next generation if we will just learn from theirs.

As a friend and well-respected industry professional noted, “Integrity is now the currency of the investment industry”  And I add that ethics, standards and best practices are the denominations of this currency.

The choice lies with each one of us to make a commitment to higher ideals of ethics and best practices as an essential complement to regulation and to learn from others and do far better than our forebears did.

You can start by downloading this infographic that provides a quick overview of the CFA Institute Codes and Standards to begin the discussions towards adoption and compliance.

Do remember to send in your comments, request and suggestions using the comment box below.