BoG gets tough on Financial Holding Companies with new directive

The Bank of Ghana has revived its supervisory role with yet another directive for the financial sector.

In the latest move, the central bank throws its spotlight on the Financial Holding Companies.

As a result, the regulator wants managers of Financial Holding Companies to comply with the provisions so as not to jeopardize the sanctity of the financial industry.

This directive for Financial Holding Companies will be the fifth in a series of directives and rules introduced by the Bank of Ghana over the past five months.

The document, which is currently seeking comments from stakeholders for finalization, gives the scope of operating a financial holding company, governance as well as activities that are permissible and those that are not.

According to the Bank of Ghana, its operation is in line with the provisions of the Banks and Specialised Deposit-Taking Institutions Act 2016 (Act 930).

The Act mandates the Bank of Ghana to have overall supervisory and regulatory authority in matters relating to Financial Holding Companies.

Per definition, a financial holding company is one that controls a bank or Specialised Deposit Taking Institution whose operation is subject to the Bank of Ghana’s regulations.

As a result, a financial holding company should stay within the good books of the Bank of Ghana where it amongst others, restricts itself to raising funds to invest in-or provide support to its subsidiaries, undertaking sharing services with its subsidiaries with the consent of the Board of both the banking subsidiary and the financial holding company.

But a financial holding company risks being in the red books of the Bank of Ghana where it directly or indirectly invests in non financial entities like commercial, agricultural or industrial activities.

Also, the central bank shall not countenance a financial holding company that establishes, divests or closes its subsidiary i.e. banks or SDIs without prior approval from the central bank.

Again, you may incur the displeasure of the regulator if as a financial holding company, you borrow from the Ghanaian banking system for the purpose of capitalizing your company or any of the subsidiaries.

In all, the central bank believes this directive should make it possible for the financial holding company to be ready to use available resources to augment the capital of its subsidiaries in periods of financial stress or adversity.

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