By Enoch K. AKUFFU-DJOBI
In Ghana’s evolving financial landscape, banking compliance and innovation often appear as adversaries in a high-stakes balancing act. Compliance, with its rigid rules and unyielding structure, is essential to safeguard the banking sector and protect consumers.
Yet, innovation, fueled by the digital era, is equally critical for Ghanaian banks to remain competitive, inclusive, and efficient. The question is: Can Ghana’s banks effectively juggle these priorities, or does the relentless focus on regulatory compliance inevitably stifle the innovation that banks—and their customers—need?
Carnival Act in Context
A “carnival act” generally refers to a performance or entertainment typically found at a carnival, where various acts such as juggling, tightrope walking, acrobatics, and other skillful or daring displays are performed to entertain audiences. Each act often requires careful balance, precision, and skill to succeed, and there’s an element of risk or excitement involved.
In the context of this article, describing compliance and innovation as a “carnival act” is a metaphor to illustrate the complex and delicate balancing act that banks perform. Just as carnival performers must juggle multiple objects or maintain balance on a high wire, banks must balance strict regulatory requirements with the need to innovate and stay competitive. Both involve managing competing priorities with skill and precision to avoid “falling” or failing to meet either goal.
Compliance: The unavoidable cost of banking stability
Compliance in banking is non-negotiable, and for good reason. Regulations in Ghana’s banking industry, such as the Anti-Money Laundering Act and the Banking Act, are designed to protect consumers, promote financial stability, and prevent illicit activities such as money laundering and fraud.
Following the banking sector cleanup initiated by the Bank of Ghana in 2017, which led to the revocation of licenses for several non-compliant financial institutions, the emphasis on strict regulatory compliance has only intensified. The cleanup, which ultimately cost the government over GH¢13 billion, underscored the critical importance of regulatory oversight in maintaining financial sector integrity.
However, compliance comes with a significant cost. Ghanaian banks invest heavily in risk management teams, anti-fraud technology, and continuous employee training to meet regulatory demands.
These costs can limit the funds and resources available for innovation, which banks need to stay competitive and serve an increasingly digital-savvy customer base. Moreover, compliance-focused resources are often seen as necessary expenditures that do not directly contribute to growth or profitability, creating a perception that regulatory demands act as a brake on banking innovation.
Innovation: The key to reaching the unbanked
Innovation, especially in the form of digital transformation, has become indispensable for banks in Ghana. Mobile money services like MTN MoMo and AirtelTigo Money have transformed financial access, especially for people in rural areas who traditionally lack access to formal banking.
These innovations have been instrumental in helping Ghana achieve financial inclusion, with mobile money penetration reaching 44% in 2021, according to the Bank of Ghana. In response, many banks have launched mobile apps, USSD services, and partnerships with fintech firms to compete in the growing digital finance space.
However, the innovation journey is not without challenges. New technologies, such as artificial intelligence (AI) and blockchain, are already making waves in global banking. Still, their adoption in Ghana is hampered by concerns about data privacy, security, and the lack of specific regulatory guidance on such technologies.
Ghana’s Data Protection Act (DPA), for instance, emphasizes the importance of protecting consumer data, yet it was not designed with today’s AI-driven, data-intensive technologies in mind, leaving banks hesitant to adopt these tools.
Striking a Balance: Innovation within regulatory boundaries
The perception that compliance restricts innovation is pervasive but misguided. Rather than treating compliance as a barrier, Ghanaian banks should view it as an opportunity to drive innovation within a regulated framework.
Compliance needs can, in fact, spur technological advancements. For example, Ghana’s adoption of Basel III standards has encouraged banks to improve their capital adequacy and liquidity management, areas where advanced data analytics and real-time monitoring systems could play pivotal roles.
To illustrate, consider the use of “regtech” (regulatory technology) solutions that streamline compliance processes. Stanbic Bank Ghana, for example, has invested in digital identity verification technologies that facilitate Know Your Customer (KYC) requirements without imposing excessive administrative burdens on customers.
Similarly, machine learning algorithms could be deployed to flag potential money laundering activities in real-time, meeting regulatory requirements more efficiently while also enhancing the customer experience.
Regulatory sandboxes also offer an encouraging avenue for balancing compliance with innovation. In Ghana, the Bank of Ghana has initiated a regulatory sandbox program that allows banks and fintech companies to test new financial products in a controlled environment. This sandbox approach, adopted from countries like Kenya and Nigeria, provides banks the freedom to experiment with cutting-edge solutions while ensuring that regulators have oversight.
Examples from Ghana and beyond
Ghana can look to global examples for guidance. In Singapore, a country renowned for its regulatory rigor, the Monetary Authority of Singapore (MAS) has adopted a proactive approach to encourage innovation within a compliant framework.
By issuing clear regulatory guidelines for fintech companies, MAS has created a thriving ecosystem where compliance and innovation coexist. Ghana’s Bank of Ghana could consider expanding its regulatory sandbox program to include a wider range of technologies, such as blockchain, that hold promise for transforming the banking sector.
Furthermore, local banks such as Ecobank Ghana Plc have successfully launched digital platforms that comply with both local and international regulations. Their mobile app, which integrates financial services with features like bill payments and mobile transfers, has set an example of how banks can drive financial inclusion through innovation while adhering to regulatory standards. By adopting such strategies, Ghanaian banks can effectively balance regulatory demands with the need to innovate.
Conclusion: Navigating the compliance-innovation tightrope
In the end, Ghana’s banking sector does not have to choose between compliance and innovation. By investing in technologies that make compliance more efficient, such as automated KYC checks and advanced fraud detection, banks can simultaneously meet regulatory requirements and foster innovation.
At the same time, regulators must continue to support innovation through frameworks like the sandbox, enabling banks to explore new possibilities without jeopardizing consumer safety or market stability.
The carnival of compliance and innovation is not about picking one act over the other but ensuring that they perform in harmony. For Ghanaian banks, mastering this balance is essential—not only to survive but to thrive in a rapidly transforming financial landscape.
The future of banking in Ghana depends on whether financial institutions and regulators can come together to embrace a compliance-driven approach to innovation that benefits both banks and the communities they serve.
Enoch is a Chartered Accountant / Certified Banker with a deep passion for accounting, banking, and governance. His expertise spans both education and practice reflecting a commitment to research and knowledge sharing. He can be reached via [email protected]). Contact: +233244201383.
