BOG SUSPENDS TWO BANKS DUE TO NON - COMPLIANCE TO FOREX REGULATION - ECONOMIST EXPLAINS
Bank of Ghana
The Bank of Ghana (BoG) has fined, and suspended the forex trading licences of Fidelity Bank (Gh) Ltd and First National Bank (Gh) Ltd for 30days (from 29th June, 2023 to 28 July, 2023) for breaches of sections 3.4, 3.5 and 3.9 of the Ghana interbank Forex Market Conduct (GIFMC).
Over the period, BoG has initiated steps to safeguard the value of the Ghana Cedi from drastic and perennial depreciation as against major trading currencies especially the US dollar.
The above notwithstanding, the foreign exchange (Forex/FX) market is fraught/troubled with trading and financial malpractices (misconduct, non - compliance and deliberate/smart violation of rules and regulations) from market participants for greedy, selfish and other wicked intents.
A basic misconduct is when a market marker (a forex participant) deliberately pretends to have forgotten to quote binding two - way prices, that is, bid price (buying price) and offer price (selling price) to all inquiring participants for the purposes fair/openness/transparent trade.
One other non - compliant behaviour is when Banks negligently refuse to provide the regulator (BoG) with all the necessary, and up-to-date information of every customer under their watch.
The overall economic/financial cost of this non - compliant attitude of Banks and Specialised Deposits Taking Institutions (SDIs) leads to unstable and unsustainable market with its troubling effects on government, economy and innocent consumers/investors.
Sections 3.4, 3.5 & 3.9 of GIFMC clearly instruct Licensed Foreign Exchange Dealers (LFXDs) to update indicative quotes (suggestive prices by way of information only) for buying and selling US dollars at regular intervals on their trading and informational (Reuters and Blomberg) platforms.
These suggestive prices are to be updated at intervals of no more than 30 minutes to enable participants (other than market markers) know the final prices (buy/sell) agreed on (regarding minimum traded lots) by market markers
Section 3.5 deals with booking, conclusion and timely confirmation of trade. That, all interbank foreign exchange (Forex/FX) trades must be booked on the Reuters platform and appropriately confirmed within five (5) minutes after the trade is concluded.
These trades must also be reported in the daily FX report submitted to the Bank of Ghana.
Section 3.9 invokes the jurisdiction of BoG to fix rates by way publishing such final/official exchange rates on its own website based on all reported rates from market participants latest by 16:30hrs GMT, daily, except on holidays.
That is 1hour after BoG had computed its reference rate (@ 15:30hrs GMT) using same reported transactions from market participants.
BoG finally publishes its reference rate on Reuters and Blomberg by 16.30 hours GMT.
It is instructive to note that, stocks or forex trading (and even electronic lotto) everywhere is time (minute by minute) sensitive in order to avoid fraudulent/shady deals.
These two aforementioned banks failed to comply with basic regulations hence the suspension of their forex licences.
And the overall effect is that, customers of these banks who wish to effect forex transactions can no longer do so directly with them, unless of course through partners of these suspended banks.
The Central Bank of Ghana (esp the financial markets, financial stability and ICT departments) must be commended for taking such a drastic measure to sanitize the FX market and keep its reputation intact.
Going forward, it is recommended that, second - time offenders of forex regulations shall be suspended for at least a year.
In furtherance, they should be barred from (proprietary trading companies/partners) using sister/colleague/partner banks in effecting forex transactions on their behalf or on their customers' behalf.
This will instill fear into other banks (forex participants) that may be negligent/complacent or may be nurturing any bad/frivolous intents.
The Writer -
Mr. Welbeck Ato Sefah
An Economist
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