Despite lost confidence in the investment banking industry after the regulator revoked the licences of some 53 fund management companies, Kojo Addae-Mensah-Chief Executive Officer of Databank, says he is confident activities will rebound ahead of the December polls.
In November 2019, the Securities and Exchange Commission (SEC) revoked the licences of 53 fund management companies for their failure to comply with the industry’s requirements and, in some cases, absconding with depositors’ funds.
The regulator’s action led to massive panic-withdrawals by clients of the remaining fund management companies which were in good standing. Others have also been cautious with how much they invest, for fear they may lose their monies in the event those companies also go down. That notwithstanding, Mr. Addae-Mensah says he is upbeat that activities in the industry will begin to normalise when spending for the election begins.
“I am still very confident about the industry. In fact, the data suggest that election years are, sometimes, better years because money runs through the system, and I am expecting same – only that it is going to be harder. But I expect 2020 to be a good year, though it won’t be so bullish like before due to the shattered confidence,” he told the B&FT during an interview in Accra.
Among other reasons SEC gave for revoking the licences of the 53 companies is included guaranteeing of returns – contrary to directives 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 overriding Investment guidelines; and failure to monitor and inject liquidity to comply with required levels.
Despite throwing his weight behind SEC for taking a bold step to sanitise the sector, he rues the effect it has had on confidence in the industry, as activities have slowed by 50 percent.
“If I use Databank data as a proxy, activities have slowed by 50 percent. If you look at the number of transactions that we were doing every month, they are now halved. Our industry’s confidence is shattered. On the commercial banking side, confidence went down; but because monies are always going through, confidence comes up pretty quickly.
“But with ours, it’s a much tougher game – because after a person has earned money and paid all the bills, that is when they will think about investment. But then, you will ask yourself what is the guarantee I am going to get this money back if I invest? So, it is a very difficult situation we find ourselves in,” he said.
He added that his outfit has begun an education exercise to help people understand the industry better and why they need not fear investing with the remaining fund managers which SEC has declared are in good standing. He further called for support from the media to help in this education exercise.