December 4, 2023
The Bank of Ghana (BoG) has issued a notice clarifying specific provisions applicable to eligible financial contracts under the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) (the BSDTI Act). The BoG’s Notice on Eligible Financial Contracts (Notice No. BG/FMD/2023/72) provides that:
- the period of temporary stay to be imposed by the BoG on termination rights between a bank or specialised deposit-taking institution and other counterparts during a receivership (under section 134 of the BSDTI Act) shall be capped at 2 business days;
- restrictions on set-offs in respect of claims acquired towards banks or specialised deposit-taking institutions during the 3-month period immediately before and after the appointment of a receiver under section 133(3) of the BSDTI Act shall not apply to set-offs under eligible financial contracts; and
- all eligible financial contracts with banks or specialised deposit-taking institutions are exempt from the netting provisions under the Corporate Insolvency and Restructuring Act, 2020 (Act 1015) (the CIRA) (being already subject to netting provisions under the BSDTI Act).
It would be recalled that in an article published in May this year (available here), we assessed the legal framework for the enforceability of netting provisions in Ghana and made the following findings and recommendations:
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No. |
Findings |
Recommendations |
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1 |
The wording of sections 165(2) and 166 of the CIRA seems to suggest that the CIRA applies to entities such as banks and specialised deposit-taking institutions which are subject to specialised legislation. Such an interpretation would be inconsistent with section 1 of the CIRA and section 138 of the BSDTI Act, both of which exempt banks and specialised deposit-taking institutions from the scope of the CIRA. |
Parliament must pass an amendment legislation to clarify whether their intention is for CIRA to apply to all netting arrangements in Ghana or exclude institutions which are governed by specialised legislation (such as the BSDTI Act) from the scope of the CIRA. Until such an enactment is passed, the BoG should issue a notice to guide the market on whether the netting provisions under sections 165 and 166 of the CIRA apply to banks and specialised deposit-taking institutions. |
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2 |
Section 112 of the BSDTI Act prohibits third parties from terminating (or accelerating their rights under) contracts entered into with banks and specialised deposit-taking institutions solely because an official administrator has been appointed in respect of such entities. |
The BSDTI Act must be amended to exclude eligible financial contracts from the scope of section 112. Until then, parties to such contracts may elect automatic early termination. |
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3 |
The BoG’s right (under section 134 of the BSDTI Act) to impose a temporary stay on the exercise of termination rights in relation to eligible financial contracts may impact termination provisions under such contracts significantly and also delay the payment of any outstanding balances by affected banks or specialised deposit-taking institutions. |
The BoG must issue a notice to direct that the imposition of a temporary stay will not impact the termination provisions of eligible financial contracts or adopt the conditions for a temporary stay under the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions (which includes a cap of 2 business days for temporary stays). |
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4 |
Section 133(3) of the BSDTI Act prohibits set offs in respect of claims which are acquired towards a bank or specialised deposit-taking institution within the 3 months prior to the appointment of a receiver. |
The BoG must consider issuing a notice to clarify that the restriction on set offs does not apply to set offs under the termination provisions of eligible financial contracts. |
We are happy to note that the BoG, through the issuance of this notice, has given effect to 3 out of the 4 recommendations we proposed (as summarised above). It is our expectation that BoG will follow this up by procuring Parliament to enact the relevant legislative amendments which are required to give full effect to all our recommendations.
With the issuance of this notice, the key outstanding issue for redress under the BSDTI Act is the exclusion of eligible financial contracts from the scope of the restriction on termination rights related to the appointment of an official administrator (under section 112 of the BSDTI Act). Such an amendment, together with the statutory clarification of the scope of the netting provisions under the CIRA, would make Ghana a full netting positive jurisdiction and boost investor confidence in the Ghanaian financial market.
