Regulation and the economics of regulation

Regulation and the economics of regulation

What happens or where does one go when a regulator gets it ‘all wrong’?

Regulations address a broad range of issues and can be classified by their objectives. These include safety (for example, food, products), privacy (for example, financial information), protection (for example, intellectual property), environmental (for example, pollution), labor or employment (for example, workers’ rights, employment practices), commerce or trade (for example, consumers’ rights and protection, investors’ protection, antitrust), and financial system (for example, prudential supervision of institutions, capital requirements, insider trading). It is difficult, if not impossible, to think of an area of life unaffected by regulation.

The bank supervisor or the exchange commission of a financial institution may be reluctant or even unwilling to release the results of a financial institution’s tests in order to promote financial stability and avoid systemic risk because of a loss of confidence.  This is all under the cover of letters and reports being classified as ‘CONFIDENTIAL’ thereby depriving the contents to be shared with any third party, as this would constitute a violation if done,

Given a range of regulatory tools and measures, it is important to recognize that regulatory and governmental policies should be very predictable as well as effective in achieving the regulatory objectives. It is very difficult for any entity to function with confidence and success in an environment where the rules are unclear or in a state of flux (in other words, where there is considerable regulatory uncertainty). It must be noted that, regulatory choices or government policies that will be consistent over time are desirable.

It is helpful to utilize regulatory tools that are consistent with maintaining a stable regulatory environment. Regulatory tools and government interventions in markets in general, include the use of price mechanisms, such as taxes and subsidies; regulatory mandates and restrictions on behaviors, including establishing rights and responsibilities; provision of public goods; and public financing of private projects.

The question that arises in the Ghanaian space is what happens if the regulator gets it ‘wrong’.  There is no financial ombudsman to settle these issues. There have been a few instances in where the regulatory reports and actions are fraught with errors and the regulators attention have been drawn to these.

However, clothes with law (Act 930, Act 931, Act 766, Act 929, Act 1061) which uses words such as in the opinion of a regulator (no more based on facts) and the laws protecting the regulators and their actions, and in some cases the laws require the aggrieved to go back to these same regulators for resolution, the regulatory framework needs a FINANCIAL OMBUDSMAN, as soon as practicable.

If this is not done, the frustrated players will have no choice than to wind down voluntary, as the case is recently of the 22 Micro Finance Institutions (MFIs) in Ghana. The effects of the exit of these 22 MFIs are grave for the financial inclusion policies of government and also have economic implications for the dependants of these MFIs – the Staff, the Creditors, the Clients.

It is on record that the Security and Exchange Commission (SEC) in Ghana got it wrong when some licences of three (3) institutions were revoked during the financial sector clean up of the 53 institutions in 2019. This unfortunate action was reversed after an Administrative Review. Who gets punished for such errors?  No one, as the law protects the SEC and its staff. 

Has anyone thought of the effects of this error on the institutions? – The Staff that work there? The shareholders and other stakeholders?  The business of financial services is based on trust and confidence in the ability of the institutions to honour its commitments. 

There were no compensations/penalties paid by the SEC, as the law is one sided, penalize the Regulated Financial Institutions (RFIs).  Even the error or restoration was not given the same publicity as the ‘shut down’. One may ask if there a tacit arrangement or policy to ‘destroy’ the small and medium RFIs in Ghana?  Ghana cannot and would not be built by the large multinational financial institutions.

Check the foreign exchange records or trajectory, every year between April and June, you would witness a phenomenon of profits being repatriated to the parent companies, putting undue pressure of the local currency, exception being years of deliberate interventions to stop or postpone this opportunity of repatriation.

A Regulator should have comprehensive enforcement powers.” Enforcement of regulations on businesses may include sanctions on the violating corporation (business or company), the individual violator(s), or both. Corporate sanctions may be appropriate when the company caused harm to others. The sanctions often involve monetary fines/fees/settlement, and in the case of individuals, the sanctions may involve prison terms. Do the RFIs get compensated when wronged?

In conclusion, may the Parliament of Ghana request the inputs of the RFIs when such laws are brought to their attention.  This may not be the case now as several laws have been passed and in operation now, that have not had the inputs from the RFIs.

Finally, may the attorney generals department consult the RFIs to craft laws that foster development of the small and medium RFIs and also initial steps to have an Office Of The Financial Ombudsmans, if laws are going to be based on ‘opinions’, which would always vary as some regulatory agency staff have no industry experience. Regulatory laws must be based on facts, as the say goes – Facts are sacred, but opinions differ.

My thoughts.




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