Ghana’s Securities and Exchange Commission (SEC) has opened the door to regulatory levy relief for genuinely distressed investment portfolios. This significant concession addresses a key criticism of its fee regime, which previously required fund managers to pay charges on assets that were impaired or no longer producing returns.
Mensah Thompson, Deputy Director-General of the SEC, confirmed the regulator will consider such cases individually. He stated the SEC would not insist on levies where managers could demonstrate that underlying investments were genuinely distressed or non-performing. This policy shift aims to provide immediate relief to investment firms grappling with difficult asset valuations.
This decision comes as Ghana’s financial sector continues to navigate the aftermath of significant clean-up exercises. Many investment management firms still hold legacy exposures to failed financial institutions, companies in receivership, and other assets whose book values may not reflect their true recoverable worth. The previous levy structure, based on assets under management (AUM), meant managers paid charges even on these non-performing assets, adding another cost to already struggling portfolios.
Mr. Thompson articulated the SEC's position during a special NorvanReports–Economic Governance Platform X Space. He emphasized that the regulator would not demand levies on non-performing or distressed funds. He urged fund managers with genuine issues to approach the SEC, assuring them of a fair assessment. This statement provides a clear directive for the industry.
The SEC’s approach is not a blanket exemption but relies on verification. Fund managers already submit placement reports detailing where client funds are invested. Mr. Thompson noted these disclosures provide a robust basis for the regulator to determine if an asset described as distressed is genuinely impaired. This process ensures accountability and prevents fraudulent claims.
Managers have already engaged the SEC regarding exposures to collapsed institutions or those in receivership. Concessions have been granted in instances where the circumstances could be substantiated. This demonstrates a practical application of the new policy, offering a lifeline to firms facing significant challenges.
While offering relief, this case-by-case system places considerable weight on regulatory discretion. The SEC will need to define 'distress' consistently, establish clear methods for valuing impaired assets, and ensure similar portfolios receive equitable treatment. Without this clarity, the mechanism, intended to improve fairness, could inadvertently create uncertainty regarding eligibility for relief.
Mr. Thompson, however, rejected the argument that an asset-based charge is inherently unfair simply because investment returns fluctuate. He highlighted that fund managers themselves routinely charge management fees against assets under management, not solely when portfolios generate profits. He questioned why a much smaller regulatory levy should automatically lead investors to withdraw funds from the market.
His argument shifts the burden back to the commercial relationship between asset managers and their clients. Where a client objects to the additional cost, Mr. Thompson suggested managers negotiate how it is shared rather than expecting the SEC to abandon the charge. He cited an example where a manager might reduce its own margin or ask the client to absorb part of the regulatory levy.
This commercial logic implies that managers may prefer to sacrifice a fraction of their fee rather than risk losing a large institutional mandate entirely. However, this adjustment will not impact all firms equally. Larger managers with diverse portfolios and stronger margins may have greater capacity to absorb part of the levy. Smaller firms operating on thinner margins could find the same concession considerably more difficult to implement, potentially leading to market consolidation.