On the global front, systems have been adopted to help financial institutions manage their risks effectively. One of these systems is referred to as Basel. The Basel accords are a series of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision (BSBS). The name for the accords is derived from Basel, Switzerland, where the committee that maintains the accords meets.

Basel I was first enacted in the 1980s. Then came Basel 11, an improvement on Basel 1. Basel II is an international business standard that requires financial institutions to maintain enough cash reserves to cover risks incurred during operations. Basel 11 offers more complex models for calculating regulatory capital. Essentially, the accord mandates that banks holding riskier assets should have more capital on hand than those maintaining safer portfolios. Basel II also requires that companies publish both the details of risky investments and risk management practices. The three essential requirements of Basel II are:

1. Mandating that capital allocations by institutional managers are more risk sensitive.
2. Separating credit risks from operational risks and quantifying both.
3. Reducing the scope or possibility of regulatory arbitrage by attempting to align the real or economic risk precisely with regulatory assessment.

Basel II has resulted in the evolution of a number of strategies to allow banks to make risky investments, such as the subprime mortgage market. Higher risks assets are moved to unregulated parts of holding companies. Alternatively, the risk can be transferred directly to investors by securitization, the process of taking a non-liquid asset or groups of assets and transforming them into a security that can be traded on open markets.

To help ensure that financial institutions in Ghana are kept abreast with best practices of risk management as pertains globally, Innovare Consulting, has organized a Global Risk Summit at the Kempinski hotel in Accra to discuss and share ideas on the best practices to adopt in risk management.  Participants were mainly from the banking and insurance sectors.

The Deputy Governor of the Bank of Ghana, Dr Johnson Esiama, who gave an address at the event stated that to ensure that financial institutions were adequately hedged against risks, each institution was required to have adequate capital and reserves.

He said that to enhance its supervisory role in line with the international community, the Bank of Ghana, has put in place some measures some of which are:

• A review of the banking regulations to reflect international best practices
• Re-organisation of the supervision dept of the Bank of Ghana in line with the rapid infusion of technology and modernity into the banking system.
• The adoption of a risk-based approach to banking supervision.
• Dedicated staff with technical assistance from the IMF to facilitate the implementation of Basel 11 and 111. 
• Financial institutions have also been instructed to introduce compliance and risk management functions

Risk management is everyone’s business and people need to be pro-active instead of reactive.  Risk management is a shared responsibility and everyone needs to be alert when it comes to financial transactions. Banking can now be done on mobile phone platforms and if people are not alert to fraudsters who can go all lengths to dupe anybody at all, they are likely to fall to the tricks of these fraudsters.  A lot of education is needed to sensitise Ghanaians on the dos and don’ts in this technologically advanced and modern world.