A new directive from the Securities and Exchange Commission (SEC) imposing tenure limits on directors of capital market operators has sent waves of anxiety across Nigeria’s financial markets, with many industry players scrambling to understand who is affected and how soon enforcement will begin.
In a circular released last Friday, the SEC announced that directors of all Capital Market Operators (CMOs) designated as “significant public interest entities” will now be subject to strict tenure limits.
According to the rule, directors may serve a maximum of 10 consecutive years in the same company and 12 consecutive years across the same group structure.
What SEC is saying
The Commission also introduced a 3-year “cool-off period” for Chief Executive Officers and Executive Directors who complete their maximum tenure, before they can be appointed as Chairmen. Even then, their tenure as Chairman will be capped at four years.
The directive, which took immediate effect, has caused confusion within the capital market community.
Several operators who spoke to Nairametrics expressed concern over the lack of clarity on who qualifies as a “significant public interest entity.” Many fear the rules could prematurely end the careers of long-serving executives who have been instrumental in building some of the country’s most prominent capital market institutions.
- One source noted that, “This could mark the end for several top executives in some of Nigeria’s largest investment banks, stockbroking firms, and fund managers. We need to know who exactly is affected.”
- Another operator raised concerns that while some firms may not be listed on the Nigerian Exchange, they may still fall within the SEC’s crosshairs due to their systemic relevance or public-facing operations. “It’s not just listed companies that should be worried. If you’re big, active, and handle public funds—even as a private firm—you may be caught,” the source added.
Interestingly, some operators pointed out that the SEC already plays a central role in approving board appointments for all capital market operators, including Directors, CEOs, and INEDs.
This makes the new directive even more striking, as it suggests that there may have been instances in the past where SEC-approved appointments may not have fully complied with the principles of independence or tenure limits now being emphasized.
The circular, in that sense, appears to be both a course correction and a warning shot, signaling tighter enforcement going forward.
Although the SEC did not publish a list of affected institutions, the circular specifies that designation as a significant public interest CMO is “as determined by the Commission,” a phrasing that has only fueled speculation.
- However, sources with knowledge of the circular told Nairametrics that the rule does not apply to publicly quoted companies like banks and financial holding companies, nor to regular private companies.
- The rule, they clarified, is more likely to affect Financial Market Infrastructure (FMI) companies, including entities like FMDQ Group, Central Securities Clearing System (CSCS), NGX Group, and NG Clearing.
Nairametrics understand further clarification will be issued by SEC in the coming days.
INED-to-ED conversions are also banned
Another significant aspect of the SEC circular prohibits the growing practice of converting Independent Non-Executive Directors (INEDs) into Executive Directors within the same company or group.
- “In particular,” the circular noted, “the Commission observes the worrying trend of the transmutation/conversion of Independent Non-Executive Directors (INEDs) to Executive Directors, including to the position of the Chief Executive Officer.”
- The SEC declared this practice contrary to corporate governance principles, stating that such transitions “erode the neutrality” expected of independent directors and compromise their ability to provide objective oversight.
- Henceforth, public companies and capital market operators are prohibited from converting INEDs to executive roles within the same company or any company within their group.
Checks by Nairametrics show that the National Code of Corporate Governance (NCCG) already provides a framework for measuring board independence.
The Code allows INEDs to serve for a maximum of three terms of three years each (9 years), and lists criteria such as shareholding thresholds (not more than 0.01% of paid-up capital), employment history, family ties to executives or major shareholders, and whether they’ve served on the board for too long to still be deemed “independent.”
It also prohibits reclassifying a non-executive director as an INED, a move designed to preserve the credibility of board independence across the sector.
That said, the scope of the Code’s applicability remains debated, case in point a Federal High Court ruling in Eko Hotels v. FRCN, which suggested the Code may not apply to unregulated private companies.
That legal grey area further complicates the interpretation of the new SEC rule.
Industry groups respond
In response to the circular, the Association of Securities Dealing Houses of Nigeria (ASHON) issued a statement calming fears among its members.
- “We have sought clarification from SEC and have received assurances that our members are not within the category referred to in the said circular,” ASHON said.
- “Accordingly, members are advised to remain calm and continue to carry on their businesses as professionally as we have always done.”
As the industry awaits further clarity from the regulator, the directive suggests it wants to tighten governance within Nigeria’s capital markets.
