Phony Financial Services in Ghana: Self-Regulation Is Not the Answer by Victor Azure


Investment bubbles in the form of Ponzi and pyramid schemes have become a recurrent feature in the financial market of Ghana in recent times. Against the backdrop failure of some banks to recapitalize leading to collapses, downgrades and takeovers, it is clear the financial system of Ghana is currently under strain. It is desperately necessary that we get the right responses on the side of policy but also on the side of victims of this debacle. Sadly, however, the response from state actors and the general public for the most part in relation to victims of the financial debacle has been a lack of sympathy for what is seen as gullibility on the part of victims. The predominant public view suggests that people who have lost money deserved it because they should have known better and acted more responsibly—self regulation. Another form of this view is that victims made a bad bargain and should therefore count their losses. This view unfortunately accepts that fraudulent financial services have a right to exist and it is the duty of the private citizen to ensure they do not fall for their schemes. That view is erroneous for three reasons. First, it denies the gatekeeping role of the state and its institutions.  Second, sustaining such a view will make it more difficult for the government to meet its targets regarding financial inclusion and the advantages that come with it such as strong domestic capital mobilization which aids macro-economic stability and wealth distribution. Third, contrary to a widely held view, fraudulent financial services have no right to exist. 

Unfortunately, not much of the discussion on the crisis in the financial markets which has been characterized by people losing life crippling sums of money is framed in the discourse of consumer protection. Consumer protection, is predominantly thought of in relation to products that are tangible and moves from a manufacturer to a consumer. Indeed, Lord Atkin’s formulation of product liability in the case of Donoghue v Stevenson [1932] A.C. 562, which is the corner stone of consumer protection, is along this line. Lord Atkin led the court to expand the scope of rights and liabilities in the common law when they held that there are rights and liabilities between a manufacturer and a consumer regardless of a contract. The new rule was that a manufacturer of products who places it on the market for the consumption of another person who has no opportunity for intermediate examination in the making of that product warrants that that product is safe and the manufacturer is liable to that extent.


Stepping up to the gatekeeping role

In 1932, a manufacturer’s liability for their products was a revolutionary formulation. But a lot has changed since 1932 and today, consumer goods include tangible and intangible products such as beverages to Non-Bank Financial Services (NBFIs). Yet, in countries like Ghana, the ethos of the first wave of consumer protection (tangible goods) is not still commonplace as there is no legislation on consumer protection and suits in the courts are few and far between. In a June 2016 Diagnostic Review of Financial Consumer Protection in Ghana, the World Bank noted a weak to non-existent regulatory framework especially for non-bank financial institutions. It noted also that the Bank of Ghana’s (BoG) approach to financial consumer protection, which centered on addressing complaints and not real time supervision to ensure that rules are not breached in the first place leaves a lot to be desired. The World Bank added its voice to the calls for the passage of the Consumer Protection Bill under the sponsorship of the Ministry of Trade and Industry but advised for special legislation in addressing financial consumer protection in Ghana. It also recommended internal dispute resolution in the financial sector as well as clarifying the BoG’s external dispute resolution mandate among other requirements such as general transparency and data protection. The gatekeeping role requires both law and institutional capacity to meet the challenges.


Phony Financial services exist at the economy’s long term peril

Ghana has a very large informal sector. The World Bank’s Global Financial Index (FINDEX) in 2017 showed that about 68% of the adult population is unbanked—the basic measure of financial inclusion. Ghana’s statistic compares badly with countries like South Africa 44%, China 13%, South Korea 5% and Singapore 2%. Globally, 1.7 billion people are unbanked, with 56% being women. Financial inclusion also reveals global income inequality. Whereas developed countries have almost universal financial inclusion, the unbanked population constitutes 40% of poor households in the developing world and in some countries even the wealthy don’t have financial services. There is a correlation between poverty reduction, the strength of economies and domestic financial inclusion. 

In addition, patronage of formal financial products such as shares, securities and treasuries remain the preserve of an elite few. This is also because too many people lack the functional literacy required in the formal sector. This has serious economic repercussions which also means more steps must be taken in bringing more people into the formal sector. For this to happen, the government must be able to guarantee that the formal sector not only has more benefits but is on the whole, safer. Thus, where fraudulent and bogus financial institutions are allowed to traffic within the formal sector with a veneer of formal validity and are later found out, confidence in the formal sector reduces, making people more susceptible to archaic means of saving which do not help the economy in the long run. If people must engage in the formal sector, then the formal sector must have safeguards that are more protective than the informal sector. 


Self-Regulation is not enough

To do this, what financial institutions put out to the public is crucial and requires real time regulation. Fraudulent financial institutions in Ghana have typically overstepped the scope of their licenses. Real time regulation will rein in such practices. Others too just have very flawed business models that appear great to the uninitiated mind. For instance, there was a lot of talk about 10% monthly interests on investment being so outrageous, yet Menzgold was able advertise it for several months, publicly. Why is that possible?

The loud statutory silence on consumer protection is exacerbated by lack of institutional capacity among others. Therefore, it is difficult to point to specific breaches of consumers’ rights in the recent financial debacle. Nonetheless, the road to financial consumer protection legislation in Ghana will be seriously enhanced by looking at some workable practices in other jurisdictions. For example the Dodd-Frank Wall Street and Consumer Protection Act in the USA which was a response to reckless financial market practices makes very firm provisions for consumer protection by providing for a financial consumer protection bureau within the Act. The Act prohibits deceptive and abusive acts and practices, requires services providers to make disclosures and provides a right to information to consumers in addition to an ombudsman for consumer education. It terms of its enforcement powers, the bureau has the powers investigation and administrative discovery, holding hearings and making recommendations for criminal prosecutions. 

Also, the United Nations’ Guidelines for Consumer Protection adopted in 2003 outlines eight basic rights of consumers, Ghana urgently needs enforcement of two of these, namely; (a) the right to be informed. To be given the facts needed to make an informed choice, and to be protected against dishonest or misleading advertising and labeling, (b) the right to consumer education. The right to acquire knowledge and skills needed to make informed, confident choices about goods and services, while being aware of basic consumer rights and responsibilities and how to act on them.


Gullibility is not grounds to be cheated

Lastly, what must totally be abandoned is victim blaming and the notion that fraudulent financial services have a right to exist and it is the task of the ordinary citizen to not fall for their schemes. It is rather time to wipe out such fraudulent services, rein in rogue institutions and hold a firm line that a financial services dealer’s representations to the public creates binding legal relations. We cannot simply ask consumers to bear the brunt of dishonest dealers. Lord Halsbury held as much in Bloomenthal v Ford [1897] A.C. 156 when he said “I told you so-and-so; but you ought not to have believed me. You were too great a fool. I had a right to mislead you because you were too great a fool.” I do not believe that any such case can be brought forward, or that there is any authority for such a proposition.” Lord Halsbury was right in 1897, he is still right today, too