The President of the Ghana Securities Industry Association, Emmanuel Alex Asiedu, has blamed recent revocation of the licenses of 53 Fund Management Companies on low standards in that sector.
The Securities and Exchange Commission (SEC) announced the revocations last Friday citing non-payment of client funds among other infractions.
Speaking to Citi News, Mr. Asiedu attributed the crisis on poor governance structures, an under-resourced regulator and not enough enforcement which “created this vicious cycle where people were copying what others had done.”
“If you added all that, it created a toxic mix of poor assets and that is what we have,” he added.
According to him, the sector, with GHc 40 billion worth of assets under management, GHc115 billion in banking sector assets and some 148 fund management firms was too much for the under-resourced SEC to regulate.
“This industry has been doing about 69 percent growth over the past 10 years per anum. So it was like teenagers driving big trucks without much to stop them.”
“What you had was a lot of people getting into the sector which neither had the financial wherewithal or the human capital or the software or the basic skills to get into it.”
The SEC revoked the licenses in line with Section 122 (2) (b) of the Securities Industry Act, 2019 (Act 929).
It said the companies largely failed to return client funds which remain locked up and in a number of cases, the firms had even folded up their operations.
It has been noted that most of the 53 Fund Management Companies whose licenses have been revoked were essentially operating illegally because they promised outrageous returns on funds they were to manage.
Companies operating under the SEC are not required by law to promise returns on investments.
Fund management companies are also not allowed to take on high-risk ventures in order to protect investors.
Commenting on the developments, the Chief Operating Officer of Dalex Finance, Joe Jackson, remarked that: “A lot of the SEC-regulated companies where actually engaged in an illegality because they were promising returns which means they were taking risks themselves and they didn’t have the shock absorbers to do so…They were not banks. They were not Finance Houses. They were not savings and loans firms.”