In a notice to the general public on 29th June 2023 referenced ‘BG/GOV/SEC/2023/09’ and titled “Fines and suspension of forex licenses of Fidelity Bank Ghana Limited and First National Bank Ghana Limited”, the Bank of Ghana announced the temporary suspension of these two Bank’s forex licensees in addition to some administrative fines. These two Banks were found to have breached the clauses 3.4, 3.5 and 3.9 of the Ghana Interbank Forex Market Conduct. Whilst the administrative fines may not be problematic for these two banks to bear given their financial strength, the temporal suspension of their forex licenses would prevent them from directly supporting any trade business for both SME and Corporate Banking customers. Also, simple FX transactions related with Personal and Retail Banking customers such as buying dollars, euro and pounds for travelling purposes as well would no longer be directly supported by these two banks. Although alternative arrangements with partner Banks can be resorted to by these banks, they will come at a cost to them and to their customers particularly those who had concessionary rates with them. In this article, we will provide some simple understanding of this current situation in the banking sector.
Banks are licensed by the Bank of Ghana to undertake various transactions. In one such bracket is what is termed as LFXD (Licensed Foreign Exchange Dealers). The Banks acting as LFXDs play a crucial role in facilitating foreign exchange (FX) transactions, providing liquidity in the market, managing currency risks, and assisting clients in navigating the complexities of the foreign exchange market. The forex currency trading activities undertaken by Banks are regulated by the Ghana Interbank Forex Market Conduct. This regulations and directives document was released by the Bank of Ghana and adopted by all Banks effective 25th February 2019.
Even though fifteen key ‘Market Rules’ exists in the Ghana Forex Market Conduct document, let us focus and simplify the three clauses the two Banks were found culpable for flouting. Whilst clause 3.4 and 3.5 boarders on procedures surrounding ‘Indicative Quotes’ by Banks, clause 3.9 boarders on how the procedures leading up to the ‘Fixing of the Official Exchange Rate’ from the Bank of Ghana;
- Firstly, the Banks acting as LFXDs have to regularly update the estimated prices for buying and selling US dollars on Reuters and Bloomberg (an adopted platform for reporting and monitoring purposes). These estimated prices should be updated every 30 minutes at most. These updated prices indicate the minimum amount at which a market-maker is willing to buy or sell US dollars in smaller units.
- Secondly, whenever interbank foreign exchange (FX) trades occur, the Banks acting as LFXD must record them on the Reuters platform and follow up with a confirmation within five minutes after the trade is finished. Additionally, these trades need to be included in the daily FX report that they send to the Bank of Ghana.
- Thirdly, the Bank of Ghana publishes the Ghana Cedi reference rate with respect to the US dollar on their website by 16:30 hours GMT daily except on holidays. They do this by using the weighted average exchange rate of all eligible US dollar transactions that Banks acting as LFXDs have reported to the Bank of Ghana by the cut-off time of 15:30 hours GMT.
Although the Audit Report of the operations of these penalized banks are not made public by the Bank of Ghana at the moment, we do know that the following are possible breaches associated with the clauses 3.4, 3.5 and 3.9;
- Failure to update the estimated prices for buying and selling US dollars on Reuters and Bloomberg within the required 30-minute interval.
- Failing to confirm interbank FX trades within five minutes after the trade is concluded.
- Omitting the inclusion of interbank FX trades in the daily FX report sent to the Bank of Ghana.
- Failing to report all eligible US dollar transactions to the Bank of Ghana by the cut-off time of 15:30 hours GMT.
- Inconsistent or incomplete reporting of interbank FX trades to the Bank of Ghana.
- Delay in providing the required documentation or information for confirming interbank FX trades.
- Breaching the frequency or timing requirements for publishing the reference rate on Reuters and Bloomberg.
- Manipulating the estimated prices for buying and selling US dollars to unfairly benefit one’s Bank.
- Not promptly addressing discrepancies or errors in the confirmation process of interbank FX trades.
- Omitting crucial details or misreporting information in the daily FX report sent to the Bank of Ghana.
The Bank of Ghana holds significant authority to enforce compliance with the Ghana Interbank Forex Market Conduct guidelines and penalize licensed banks for their failures to comply. In the event of non-compliance, the Bank of Ghana has a range of sanctioned penalties at its disposal. These penalties aim to ensure accountability, maintain market integrity, and promote a fair and transparent financial system.;
- Issuance of warning letters to the dealing officer and their LFXDs or FX Broker.
- Administrative Fines / Monetary Penalties.
- Suspension of LXFD, dealing officer, FX Broker and the publication of same in the newspapers.
- Revocation of FX dealing license, and the publication of same in the newspapers.
- Legal prosecution of fraudulent cases. Where appropriate, Bank of Ghana will refer fraudulent cases to the law enforcement agents and the Attorney General for prosecution.
- Exclusion from trading with the Bank of Ghana.
- Name and shame of recalcitrant market participants.
Enhancing compliance and transparency in the foreign exchange market is crucial for maintaining a fair and well-functioning financial system. The following are three key suggestions to address the breaches identified among licensed banks, particularly Licensed Foreign Exchange Dealers (LFXDs), in Ghana:
- Strengthen Monitoring and Enforcement: The Bank of Ghana should implement robust monitoring and enforcement measures to ensure strict adherence to regulatory guidelines. Regular audits, increased oversight, and the imposition of stricter penalties can help deter non-compliance and promote a culture of regulatory adherence among licensed banks.
- Improve Transparency and Reporting: Banks acting as LFXDs should prioritize transparency by promptly updating indicative quotes, accurately recording interbank FX trades, and submitting comprehensive and timely daily FX reports to the Bank of Ghana. Transparent practices foster trust, enable effective regulatory oversight, and promote a level playing field in the foreign exchange market.
- Enhance Training and Awareness: The Bank of Ghana should focus on providing comprehensive training and awareness programs to banks and their staff regarding the Ghana Interbank Forex Market Conduct guidelines. By enhancing knowledge and understanding of the regulations, banks can better navigate compliance requirements, reducing the likelihood of breaches and contributing to a more compliant and responsible foreign exchange ecosystem.
In conclusion, the recent breaches of clauses 3.4, 3.5, and 3.9 of the Ghana Interbank Forex Market Conduct by licensed banks in Ghana, particularly Licensed Foreign Exchange Dealers (LFXDs), highlight the need for enhanced compliance and transparency in the foreign exchange market. These breaches relate to the updating of indicative quotes, recording and confirming interbank FX trades, and the process of fixing the official exchange rate. The suggested measures to address these breaches include strengthening monitoring and enforcement, improving transparency and reporting, and enhancing training and awareness among banks and their staff. Strict adherence to regulatory guidelines, along with regular audits, increased oversight, and the imposition of stricter penalties, will promote a culture of regulatory adherence and foster a fair and well-functioning financial system. By implementing these suggestions, Ghana can uphold the integrity of its foreign exchange market and maintain trust among market participants.
Author: Yaw Addai Boadu
Email: sirboadu@gmail.com
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