Among the peculiarities of banking business is that the sector thrives on confidence of its varied stakeholders.
Any drop in this faith in any part of the sector can create catastrophic consequences, not least a run on the individual banks leading to a systemic crisis and potential bankruptcies.
Secrecy, confidentiality and professionalism are collectively, pillars upon which the banking system operates.
Any reckless dissemination of unverified information about any part of the constituent elements of the sector must therefore be avoided at all costs.
Driving to Kumasi for a funeral, I heard from a radio station discussion following what Honourable Adongo who is said to be a board member of Bank of Ghana, is reported to have said about new rules concerning withdrawal of forex cash over the counters of banks going forward.
I was beside myself with incredulity over the submissions made by the discussants, as these ran counter to prevailing rules about forex cash handling by the respective banks.
This could palpably create fear and panic in the sector and by implication, the exchange rate of the cedi to other currencies.
Whether Hon. Adongo was misquoted or not, I could not believe that following the unpleasant consequences of the DDEP, the demonstrations and the dip in confidence in the sector, the government could dream of another draconian measure to further create chaos in the banking system.
Granted that this idea of banning forex withdrawals had even been mooted at the board level, shouldn’t the appropriate layers of communication be followed, through, say the Secretary to the Board and the correct timing assessed before finally getting to the public per the right regulatory notice?
To my utter dismay, neither Hon. Adongo nor the journalists discussing the alleged proposed arrangements appeared to have any knowledge of the different types of accounts in foreign currencies that could be held by a customer and the differing rules relating to each account.
To give the impression that henceforth, no cash could be withdrawn from these bank accounts across bank counters was merely creating fear and panic as there are different rules hinged on the source of funding for the respective accounts.
There are basically, two types of Forex Accounts per existing rules. Foreign Exchange Accounts (FEA) are basically accounts held with the banks and fed with physical foreign cash deposits within Ghana.
Withdrawals can be made from these accounts in the same currency or cedis as may be agreed between the customer and the bank.
Foreign Currency Accounts (FCA) are basically those that are fed by inward forex cash remittances, foreign cheques clearances, export proceeds, consultancy receipts from abroad and basically, non- cash forex inflows.
Over the counter forex cash withdrawals from these latter accounts are not automatically paid in the foreign currency but may be negotiated with the bank against prevailing cedi/forex rates.
In other cases, subject to forex availability and convenience, a bank could pay out some amount from this account, subject to an agreed commission. The customer cannot insist on being paid the same forex cash over the counter unless the bank agrees.
Beyond these arrangements, the banks, subject to liquidity, can sell forex to clients within the ambit of the Foreign Exchange Act that defines permissible outward transfers. These could be for medical purposes, educational, travel or other approved purposes, subject to appropriate documentation.
To ban forex withdrawals across bank counters simply because foreign currencies are not legal tender in Ghana could be farther from the truth and could destabilise forex liquidity and exchange rates.
Suffice it to say that the Central Bank is empowered to permit certain institutions like, approved hotels, airlines and their reservation agents to accept or deal in foreign currency within defined parameters.
The unfortunate impression created during the radio discussion was quickly and commendably debunked by the Central bank. It is hoped that very little, if any damage, has been done to the already fragile confidence of bank customers in their dealings with banks.
We all have a collective responsibility to ensure that any information about the banking system is subjected to scrutiny or verification before this is churned out to the public in order to maintain confidence in the banking system.
There are very sound reasons why Central Bank Governors across the globe tend to be relatively reclusive and frugal in their public utterances concerning the banking system and the economy generally.
Stock Exchanges, Forex Bureaux and other elements of the financial eco-system glean their forecasts of the economic direction of a country from vital economic statistics.
The effect of communication originating from the governor and other key members of the financial system, cannot be under- rated in speculative tendencies about the direction of the economy.
Influential persons in the governance machinery must therefore be extremely circumspect in the public utterances as these could affect sovereign and reputational risks
Synchronization of directors’ perspectives
It is important to emphasise that, as part of corporate governance of institutions, especially banks, directors have a collective responsibility for the growth of their firms. In like manner, if there is mismanagement that imperils other stakeholders, the directors are jointly and severally liable.
In decision making and ensuring the cascading of same to employees and other stakeholders, directors must be seen to be singing from the same hymn sheet. Allowance is made for divergent views during discussions of policy and other key issues.
This must find expression in the minutes of the board meeting. Once a decision is made, however, it is not expected that a director would be visibly seen to be countering the collective decision, unless, possibly this becomes necessary as part of one’s defence in a court of law.
The idea of a director publicly explaining a key issue that is diametrically opposite to what the main board has decided must be considered amateurish.
It is disconcerting for a board member to make a public declaration of a board intent that is completely opposite the board’s considered view.
For Bank of Ghana to hurriedly issue a disclaimer on what Hon. Adongo is alleged to have issued out to the public regarding the ban on forex withdrawals at bank counters is a completely avoidable reputational risk for an institution like the Central Bank which has a functional Communications Directorate.
Commercial banks and investment advisory services
Many professional bankers cannot be oblivious of the case of Greenwood v Martins Bank (1959) where a bank customer sued for investment advice that turned sour for the client’s aspirations.
This is an old banking case, the summary of which is given below:
Woods v. Martins Bank Ltd [1959] 1 QB 55 – Application in Ghana
1. Brief Facts of the Case (UK)
Mr. Woods sought investment advice from his bank manager. The manager recommended a company without disclosing that the bank had an interest in it.
Mr. Woods invested and lost money. The court held the bank liable for breach of fiduciary duty and negligence.
2. Legal Principle
If a bank voluntarily provides investment advice, it owes a duty of care and possibly a fiduciary duty. The advice must be:
- – Competent
- – Honest
- – Free from conflict of interest
- – In the customer’s best interest
3. Ghanaian Legal Context
Relevant Laws:
- – 1992 Constitution – Article 11(1)(e) permits application of English common law.
- – Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) – Banks must deal fairly and honestly.
- – Securities Industry Act, 2016 (Act 929) – Imposes duties on investment advisers, including banks.
- – BoG and SEC Guidelines – Cover investment advice, risk disclosure, and fair dealing.
4. Ghanaian Case Law:
UT Bank Ltd v. Attorney General & Others [2017]
The Supreme Court emphasized fiduciary duties of banks. Held that banks must act in good faith, with full disclosure, and avoid conflicts of interest. Reinforces Woods v. Martins Bank in Ghanaian jurisprudence.
5. Practical Implications for Ghana
Banks offering investment advice or wealth management services must:
- – Avoid giving biased or conflicted advice.
- – Fully disclose any financial interest in recommended products.
- – Act with care, honesty, and competence.
Customers relying on such advice can sue for:
- – Negligent misstatement
- – Breach of fiduciary duty
- – Breach of contract or statutory duty
Conclusion
Ghanaian courts will likely apply the principle from Woods v. Martins Bank Ltd to hold banks accountable when they voluntarily give investment advice that causes loss.
The principle is supported by Ghanaian statutes and the case of UT Bank Ltd v. Attorney General & Others.
I recall the Chief Executive Officer of the Ghana Association of Bankers giving an interview to explain the banks’ role in the ill-fated debt exchange programme where various bond holders lost substantial investment values from their holdings.
This was against the backdrop that some institutional investors were contemplating suing their bankers for their unprecedented losses.
Hitherto, most business students had left the university and other higher institutions of learning with the belief that sovereign /government instruments are risk free.
Then governments in Argentina, Italy, Bolivia and others started defaulting on their sovereign instruments.
Little did we envisage that Ghana could be near defaulting and had to resort to hair cuts on bond holdings, with serious implications on election outcomes.
I pray and hope that banks have revised their contractual agreements with clients to absolve them (banks) from liability in the investment advisory space.
While actively lecturing at the National Banking College, the Chartered Institute of Bankers, and other fora, I was fond of warning middle and senior managers from granting investment advice over the counter.
Rather, I encouraged them to escalate any request for investment advice to the appropriate unit in the bank which has functional responsibility for that service.
An old student of mine reminded me of part of my advice then which said that when confronted with investment advice for which you are not an expert or has no functional responsibility, escalate it to your boss who must do same until the buck stops at the right table.
I used to add jokingly that if you find yourself incapable, transfer your stress to your boss…. that is why he earns more than you.
The stakes are changing fast in the investment advisory space as sources of risk keep multiplying. Banks must therefore be very circumspect in what advice they give and the appropriate disclaimers to invoke in order to insulate themselves from potential legal liabilities.
Heads of departments must refrain from putting National Service personnel or other novices in the front-line customer interfaces. As agents, they could incur legal liability and reputational risk for the bank inadvertently.
The writer is a Fellow of the Chartered Institute of Bankers, a former adjunct Lecturer at the National Banking College, a farmer and the author of “Risk Management in Banking” textbook. Email; [email protected] Tel. 0244 324181
