Principles-based supervision needed to balance innovation, consumer protection – Dr. Atuahene

Banking and corporate governance expert Dr. Richmond Akwasi Atuahene has advocated the adoption of a principles-based regulatory framework in the domestic digital financial sector, arguing that such an approach is essential to balance innovation with robust consumer protection in a fast-evolving technological landscape.

In a detailed paper on Ghana’s digital financial ecosystem, Dr. Atuahene warned that the existing rules-based regulatory framework, while effective in certain contexts, is increasingly inadequate for addressing the complexities of financial technology (FinTech), mobile money, digital currencies and other emerging financial services.

“The challenge facing financial regulators today is not whether to regulate innovation, but how to do so in a manner that protects consumers without stifling growth,” he stated.

“Principles-based supervision offers a pragmatic solution by focusing on the outcomes of financial services – such as safety, transparency and fairness – rather than prescribing rigid methods of compliance,” Dr. Atuahene added.

The local digital financial sector has witnessed exponential growth in recent years, driven by widespread adoption of mobile money platforms, peer-to-peer lending and digital payment systems.

As of December 2024, BoG data show that mobile money platforms account for over 97 percent of digital transaction volumes in the country, with more than 59.7 million registered accounts and over four million mobile loans accessed by individuals previously excluded from formal banking systems.

This expansion, while transformative for financial inclusion, has also introduced new regulatory challenges including data privacy concerns, cybersecurity risks, digital fraud and market conduct issues.

According to Dr. Atuahene, these risks require a shift in regulatory posture – from a static, one-size-fits-all model to a dynamic framework that adapts to innovations without compromising essential regulatory goals.

Under principles-based supervision, regulators establish high-level objectives – such as protecting consumer data, ensuring fair treatment, or maintaining financial stability – and allow institutions to determine how best to meet these standards, subject to oversight.

This contrasts with traditional rules-based supervision, which relies on detailed, prescriptive requirements that may become obsolete as technologies change.

“FinTech and digital finance are defined by speed, scale and constant innovation. A rigid rulebook cannot anticipate or address every emerging scenario. Principles-based regulation empowers institutions to innovate responsibly while giving regulators flexibility that can respond to evolving risks,” Dr. Atuahene explained.

He stated that such a model does not mean an absence of rules. Rather, it enables a more nuanced regulatory environment where specific, codified rules govern high-risk areas – such as anti-money laundering and capital adequacy – while broader principles govern dynamic areas like product development, customer service and data governance.

This approach, he argued, also strengthens consumer protection. By placing the onus on institutions to act in the best interest of consumers and demonstrate compliance with broad ethical and operational standards, regulators can hold firms accountable in a more responsive and risk-aware manner.

“Principles-based supervision fosters a culture of responsibility and risk management within firms. It challenges them to not merely meet minimum standards but also internalise regulatory objectives as part of their business practices,” he noted.

Dr. Atuahene further recommended that the regulator expand its use of regulatory sandboxes – controlled environments for testing new financial innovations – and adopt regulatory technologies (RegTech) to enhance supervisory capabilities.

These tools, he said, will help bridge the gap between policy and practice by allowing regulators to monitor market developments in real time and intervene where necessary.

Citing international examples, he pointed to the United Kingdom’s Financial Conduct Authority and Indonesia’s financial services regulator as institutions that have successfully integrated principles-based regulation to manage digital finance. He called for Ghana to adopt a similar approach tailored to the country’s unique financial landscape.

He also proposed a hybrid model as a transitional step – combining the clarity of rules with the adaptability of principles – to ensure both regulatory certainty and flexibility. Such a model, he said, would be especially effective in areas like mobile money and digital lending where risks and opportunities are evolving rapidly.

With Ghana’s growing focus on digitalisation, including ongoing efforts to pilot a central bank digital currency (e-Cedi), Dr. Atuahene warned that regulatory inertia could undermine financial sector innovation and expose consumers to systemic risks. He urged regulators to take a proactive stance.

“The shift to a principles-based regime is not optional – it is essential if Ghana is to sustain the gains of financial inclusion, promote responsible innovation and maintain public trust in digital finance,” he remarked.

The call comes at a time when BoG is increasingly engaging with FinTechs through sandbox initiatives and payment systems modernisation.

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