The Bank of Ghana has issued a draft directive on Financial Holding Companies in the country as it seeks inputs from the financial community on how to properly regulate the sector.

The directive is intended to facilitate understanding of the requirements for the adoption and operations of a financial holding company in Ghana. 

It covers the definition and structure of a financial holding company, registration requirements, ownership and control, governance, permissible and non-permissible activities, statutory regulation, as well as supervision.
 
It also seeks to facilitate effective consolidated supervision of the regulated financial institutions and to further engender the safety and soundness of the banking system. 

Under Act 930, existing holding companies that are non-financial in nature must be divested and a financial holding company established as a parent of the bank/SDI and the other financial subsidiaries.

The exposure draft seeks inputs from the financial community to operational what is already contained in the Banks and Specialised Deposit Taking Institution Act 930 2016

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

According to the new draft directive, 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.

It states that 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.

Permissible activities 

The activities of the financial holding company shall be to the holding of equities in its subsidiaries, raise funds to invest in or provide support to its subsidiaries. 

According to the draft directive: “A financial holding company may, with the prior written approval of the Bank of Ghana, provide shared services to its subsidiaries within the group in respect of: 
a. Human Resources policy; 
b. Risk Management policy; 
c. Internal Control policy; 
d. Compliance policy; 
e. Information and Communication Technology; 
f. Facilities; 
g. Advisory financial, accounting or information processing services for the purposes of providing support to the business conducted by subsidiaries: 
h. Any other services as the Bank of Ghana may determine from time to time. 

The draft also states that shared services shall be provided on non-preferential basis (arm’s length) to subsidiaries and affiliates. Transactions in respect of such services shall require the consent of the Board of both the banking subsidiary and the financial holding company. 

It continues that “a financial holding company may invest in a company (vendor) that engages in the activities permissible for banks and specialised deposit-taking institutions and any other activities that the Bank of Ghana may determine.

“a financial holding company shall not hold equity investment of more 5% of the issued shares of the vendor or in aggregate not more than 10%.”

Non-permissible activities 

According to the draft directive, a financial holding company is prohibited from undertaking the following activities:
i.    Direct or indirect Investment in non-financial entities (e.g. commercial, agricultural or industrial activities). 
ii.    Establishment, divestment and closure of subsidiaries without the prior written approval of the Bank of Ghana and/or any other relevant regulatory or supervisory authority, as the case may be. 
iii.    Deriving or receiving income from sources other than as listed herein: 
a. Dividend Income from its subsidiaries/associates; 
b. Income from shared services, where applicable; 
c. Interest earned from idle capital funds invested in government securities; 
d. Divestment from subsidiaries/associates; 
e. Any other source as may be approved by the Bank of Ghana