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.
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 Naijaonpoint 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.
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.
Naijaonpoint understand further clarification will be issued by SEC in the coming days.
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.
Checks by Naijaonpoint 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 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.
As the industry awaits further clarity from the regulator, the directive suggests it wants to tighten governance within Nigeria’s capital markets.