Fund managers losing clients to banks – KPMG report

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Depositors prefer to invest their monies with banks than with fund management companies due to renewed high confidence in the former following a general reform carried out by the Bank of Ghana in the banking industry, a survey by KPMG, an auditing giant, has revealed.

The ‘2020 Banking Industry Customer Experience Survey: Ghana Retail Banking Insights’ published by the KPMG and carried out on 1,000 respondents has shown that 71 percent of depositors see banks as safer havens for investment than fund management companies.

According to the survey, only 14 percent of the respondents said they will consider investing in fund management companies, while the remaining 6 percent said they would keep their monies at home.

This, the report explains, means depositors still have high confidence in the banking sector after the regulator took it through some reforms almost two years ago. The said reforms include increasing the minimum capital requirement to GH¢400 million from GH¢120 million; introducing stringent corporate governance rules, among other directives aimed at improving supervision and compliance in the banking sector.

“The 5R approach (rebuilding capital, reforming regulation, restructuring banks, reducing systemic risks and restoring governance) in banks is important. We note the efforts being made by the Bank of Ghana, the Chartered Institute of Bankers (CIB), Ghana and others, to put ethics and professionalism back on the agenda of banks.

Embedding ethics, professionalism and simply treating customers fairly, are not “a nice to do” for banks. These are the fundamentals to building a sustainable banking business model, excellence in customer experience and a safe financial system,” Robert Dzato, Lead, Financial Services Strategy at KPMG Ghana said in the report.

The report further adds that 40 percent of the respondents indicated that the cleanup by the regulator has boosted the confidence they have for the banking industry, while only 10 percent said they do not have such confidence despite the reforms. The remaining 50 percent said they were neutral – meaning, the reforms have neither affected their confidence in the sector negatively or positively.

Fund management companies’ troubles

The fund managers’ woes started early in 2019 when clients began withdrawing their investments with most of these companies following the collapse of some nine local banks by the Bank of Ghana in 2018. Most of the struggling fund management companies blamed the revocation of the banks’ licences as the cause of their inability to pay their clients’ investments as they claimed their funds were also locked up in the collapsed banks.

Eventually, in November last year, the Securities and Exchange Commission (SEC), which regulates the activities of the fund management companies, withdrew the licences of 53 of them, following their failure to comply with the industry’s requirement and, in some cases, absconding with depositors’ funds.

In a public notice released by the regulator, SEC said there were no other means of saving these companies than revoking their licences as they have largely failed to return client funds which remain locked up and, in a number of cases, have folded up their operations. The continuous existence of these companies, from the regulator’s persective, posed severe risks to the stability of the capital market and to the interests of investors, hence, the decision to eliminate them from the system.

Some of the breaches the regulator said led to the decision included guaranteeing of returns contrary to the directive of the Commission; failure to honour client redemption requests; failure to honour payment terms agreed at Complaints Hearings; failure to place client funds with proper due diligence and the requisite standard of professional conduct, evidenced by over concentration of portfolios in high risk institutions and related party transactions resulting in severe liquidity challenges.

Other offences include failure to segregate client funds from operational funds and in some cases using client funds to pay for operational activities; closure of offices without following due process; persistent regulatory breaches including failure to submit reports as required; corporate governance weakness with weak board oversight, poor accountability, and override of Investment guidelines; and failure to monitor and inject liquidity to comply with required levels.

According to the regulator, all efforts to get directors and management of the affected institutions to rectify the above lapses have yielded no positive results.

The industry has since been shattered as many depositors feared suffering the same fate of clients of the collapsed firms, thereby withdrawing their investments with the remaining of the companies said to be in good standing by SEC. Government has, however, started paying all validated locked up cash of clients of the collapsed fund management companies.

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