By Joshua Worlasi AMLANU and Ebenezer Chike Adjei Njoku
Capital market leaders are optimistic that significant reforms can be achieved in the medium-term, with the Ghana Stock Exchange (GSE) and Ghana Securities Industry Association (GSIA) pushing for legislative and structural changes in partnership with new leadership at the Securities and Exchange Commission (SEC).
The institutional pair believe urgent action on regulatory stability, capital market development and financial sustainability for SEC are among the most paramount issues.
Speaking exclusively with B&FT, Managing Director-GSE Abena Amoah highlighted the review and swift passage of an updated Securities Industry Act as a top priority for the newly-appointed Acting Director-General of SEC, James Avedzi Klutse.
“The existing framework has been in existence since 2016. However, over the last two years we have been reviewing it to align with international standards while simplifying it to facilitate the sector’s growth,” she said of the Securities Industry Act, 2016 (Act 929) and its Regulations.
GSIA president Winston Nelson Jr. also stressed the importance of finalising the Act which he said aims to close regulatory gaps, particularly in response to past financial sector crises.
Since the existing framework was put in place, the sector has experienced the clean up exercise of 2017 to 2019, the Domestic Debt Exchange Programme (DDE0) and subsequent mark-to-market directives of 2022 and 2023.
Mr. Nelson noted that while those developments were adverse, they exposed shortfalls in the legislative set-up and consequent limitations of SEC as a regulator.
“This new Act is designed to fix those gaps and build a more robust industry framework that can sustain us for the next five decades,” Mr. Nelson stated in a separate interview with this paper.
Given Mr. Klutse’s experience as former Chair of Parliament’s Finance Committee, they both expressed expectation that his leadership will ushered in and accelerate these legislative changes.
“Knowing he chaired the Finance Committee and understands the legislative process, we’re very excited,” the GSE boss said.
“The Securities Industry bill is critical. Given his background and experience, we hope he will prioritise and get it passed,” Mr. Nelson added.
Ms. Amoah further pointed out the need for a more flexible regulatory framework for capital raising, arguing that laws should not impose the same compliance burdens on small issuers as they do on billion-cedi transactions.
“A company looking to raise GH¢10million must have a simple process compared to one seeking a billion cedis, for example,” she said.
Mr. Nelson also stressed the importance of maintaining continuity in regulatory oversight. “For us, the expectation is that we will be able to have the same rapport, the same working relationship, the same partnership. Should we say same or better? Never worse,” he said.
Capital Market Master Plan
Both Mr. Nelson and Ms. Amoah highlighted the Capital Market Master Plan (CMMP) as a crucial initiative to strengthen Ghana’s capital markets.
The GSIA president described the CMMP as an “umbrella project carried by the whole capital markets”, as he reiterated the importance of continuity in its implementation.
“The Capital Market Master Plan is an exceptional document that has been well-received by the industry. While we have made modest progress in its implementation, there is is still so much to cover and we are expecting that the new leadership at the regulator will continue to push it,” he explained.
The GSE MD echoed this sentiment, stating: “The CMMP is a great document; the market rallied behind it and we are working on implementing the key policies – such as the right tax incentives to energise investors and issuers on the market”.
The Accra bourse has been at the forefront of the push for reinstatement of capital gains tax exemption on listed securities, as well as other tax incentives for would-be listing companies.
Introduced in 2016 to stimulate the market, the capital gains exemption permitted resident investors to “elect to pay tax on capital gains on the realisation of an investment asset at 15 percent; otherwise, the capital gain is taxable at the investor’s marginal tax rate”. However, this exemption expired in 2021 and has not been reinstated since.
Beyond policy implementation, Ms. Amoah stressed the importance of financial literacy – particularly for young people.
“We need to pursue policies that put investment education in primary school, make it a mandatory training programme to reduce investment fraud, to reduce some of the cyber frauds and all that we are seeing – but also to empower an agenda, the culture of savings and investment at a young age,” she said.
Demutualisation
Another key focus area for both industry leaders is demutualisation of the GSE, a process that would transform the Exchange into a profit-oriented, shareholder-owned entity and ostensibly drive efficiency.
Ms. Amoah confirmed that the GSE remains committed to completing this transition. “It is a priority for the SEC, it is a priority for us at the GSE and we look forward to working with them to bring finalisation to demutualisation of the exchange,” she said.
Mr. Nelson provided further insight into the progress made so far, noting that: “We have done a lot of work, stakeholder consultations; we have been doing this project for two, three years. A lot of engagements, spoken to people, etc. Committees have been set up, paperwork has been done”.
He urged SEC to expedite the approval process despite the change of guard, arguing: “ Almost all the work we are required to do as members of the stock exchange we have done. We really hope it can be finalised this year”.
If successful, the Accra bourse will join its peers in Johannesburg, Nairobi, Dar es Salaam, Lagos and Casablanca, among others.
SEC’s Sustainable Funding
Mr. Nelson further raised concern about the SEC’s chronic underfunding, which they argue has hindered the regulator’s effectiveness.
He described SEC as the least-resourced regulator in Ghana’s financial sector. “No securities regulator should be in that state,” he said, pointing out that other financial regulators operate from well-resourced offices.
A B&FT analysis from June 2021 revealed that, at the time, the Bank of Ghana (BoG) was regulating 823 financial institutions, including banks, microfinance firms and forex bureaux, while the Securities and Exchange Commission (SEC) oversaw 232 entities such as investment banks, mutual funds and stock exchanges.
Despite the SEC regulating about a quarter of the institutions under BoG’s purview, the staffing gap is far wider. As of December 2018, BoG had 2,016 employees whereas SEC in 2021 had only 68 full-time staff – just 3 percent of the central bank’s workforce – with plans to expand.
Checks with their most recent data showed that the number of full-time employees at the Commission had increased to 83 at end-2023. The SEC also recorded a total income of GH¢68.94million and total assets of GH¢84.96million at the end of 2023.
For context, the BoG had a staff strength of 2,234 during the same period under consideration. The total operating income of the Bank stood at GH¢7.88billion and was attributed “to a large extent, to interest earned on the Bank’s investments in securities and bonds held abroad, fines imposed on institutions for regulatory breaches and fees and charges”. It also had total assets valued at GH¢139.3billion.
To address this, Mr. Nelson suggested that SEC should receive a portion of fees collected by the National Pensions Regulatory Authority (NPRA).
“There has always been a discussion that some parts of the NPRA charges – you know, for pensions – are provided in the law. Some parts of it should also be allocated to the SEC,” he said.
He argued that a well-funded SEC is critical for market stability, stating: “It is critical for the Securities and Exchange Commission to be well-funded, because what they do has far-reaching consequences for all of us if they get it wrong”.
