Enhancing transparency and accountability in Ghana’s financial sector: The Bank of Ghana’s Corporate Governance Disclosure Directive
Daniel Addo Asiedu Esq
Consolidated Bank Ghana, Accra
In May 2022, the Bank of Ghana (BoG), as mandated by the Banks and Specialised Deposit-Taking Institutions Act 2016 (Act 930), introduced the Corporate Governance Disclosure Directive (CGD). Act 930 grants the BoG with the authority to prescribe rules concerning any matter of corporate governance for banks, specialised deposit-taking institutions or financial holding companies that it deems necessary to ensure prudent operation of the market. The CGD aims to enhance corporate governance practices within regulated financial institutions (RFIs), including banks, savings and loans companies, finance houses and financial holding companies. Designed to improve transparency, accountability and public trust in the financial sector, the Directive enforces clear reporting and disclosure requirements. These requirements ensure that key governance aspects, such as board composition, remuneration policies, internal controls and risk management, are effectively communicated to stakeholders. This article evaluates the CGD’s objectives, provisions and its potential impact on financial institutions and stakeholders in Ghana.
Background
Ghana’s financial sector plays a vital role in driving national economic growth. The introduction of the CGD by the BoG is a strategic move to align the governance practices of RFIs with global standards on financial transparency and accountability. By doing so, the Directive aims to bolster stakeholder confidence and strengthen the governance frameworks within financial institutions operating in the country.
Research objectives
This article seeks to:
- evaluate the goals and implementation strategies of the CGD;
- analyse the effect of the CGD’s disclosure provisions on RFI governance practices;
- assess the impact of the Directive on the relationship between RFIs and their stakeholders; and
- examine how the CGD promotes transparency and market discipline within Ghana’s financial sector.
Overview of the Corporate Governance Disclosure Directive
Key objectives
The CGD has several key objectives:
- enhancing transparency and market discipline within financial institutions;
- improving the accountability of RFIs to their stakeholders;
- evaluating corporate governance effectiveness and assessing risk profiles;
- fostering public trust in RFIs; and
- updating disclosures through RFIs’ audited financial statements.
These objectives collectively aim to ensure that RFIs operate with greater transparency and accountability, while maintaining strong governance structures.
Certification of compliance
A central requirement of the CGD is for each RFI board to provide certification, within 90 days of the start of the financial year, confirming the company’s compliance with the Directive. This certification includes:
- an independent assessment of the effectiveness of corporate governance within the company;
- confirmation that the directors are aware of their governance responsibilities and have completed the relevant training; and
- reporting of any material governance deficiencies and proposed corrective actions.
Disclosure requirements
The CGD mandates a range of disclosures, including in regard to:
- board meetings, attendance and other director engagements;
- external evaluations of the board every two years;
- conflicts of interest and related party transactions; and
- governance structures, remuneration policies and board committees.
These disclosures ensure RFIs operate transparently, holding them accountable to both the relevant regulators and the public.
Detailed analysis of the disclosure provisions
Annual certification
RFIs are required to include a certification statement in their audited financial statements. This statement should detail:
- the extent of their compliance with the CGD and the corrective actions taken;
- the effectiveness of their corporate governance processes; and
- confirmation of the directors’ participation in corporate governance training.
Governance structure
RFIs must disclose detailed information on their governance codes, board composition, director induction processes and shareholding structures. This information enables stakeholders to understand the composition and functioning of the institution’s governing bodies.
Remuneration policies
Disclosures on executive and non-executive directors’ compensation systems are required to ensure that they align with the company’s long-term institutional goals and prudent risk management practices.
Board committees
RFIs must disclose the details of the structure and activities of their board committees, as well as plans for future governance improvements. This information enhances the oversight by external parties and provides stakeholders with insight into how well committees are performing their duties.
Internal control and risk management
The CGD emphasises the importance of the adoption of internal control frameworks, risk management strategies and internal audit functions. Disclosures relating to these aspects ensure that RFIs effectively manage their operational, financial and compliance risks.
Board evaluation and succession planning
RFIs are required to disclose whether external evaluations of the board and its committees have been conducted. Additionally, they must outline succession planning strategies to ensure leadership continuity and diversity.
Related party transactions and ethics
Disclosures on related party transactions, conflict of interest policies and the institution’s code of conduct are essential to ensure ethical governance practices are adopted and adhered to and compliance with the relevant regulations.
Impact and implications of the CGD
Enhancing transparency and accountability
The CGD mandates comprehensive disclosures that significantly improve transparency in regard to the operations of RFIs. Stakeholders, including regulators and the public, are provided with a clearer view of the governance practices, risk management and operational integrity related to a particular institution.
Strengthening risk management
The CGD’s focus on effective risk management frameworks and corporate governance evaluations is aimed at reducing systemic risks in the financial sector. By requiring regular disclosures on internal controls and performance assessments, the Directive strengthens the regulatory oversight of RFIs.
Building public trust
By promoting transparency and accountability, the CGD fosters public confidence in the financial sector. Stakeholders are given assurance that RFIs are being managed prudently, which enhances the overall stability of the sector.
Compliance with international standards
The CGD aligns Ghana’s financial governance practices with international best practices, making RFIs more competitive globally. It ensures that institutions remain well-regulated and can attract foreign investment.
Conclusion
The BoG’s CGD represents a significant step towards improving the governance, transparency and accountability of RFIs in Ghana. By mandating detailed disclosures, the CGD enhances market discipline, bolsters stakeholder confidence and ensures effective governance practices. The Directive aligns with international standards, ensuring that Ghana’s financial sector remains resilient and competitive on the global stage, contributing to sustainable economic development in the country.