A newly issued directive from the Securities and Exchange Commission (SEC) has introduced tenure limits for directors of capital market operators, prompting widespread uncertainty and concern within Nigeria’s financial services industry. Stakeholders are currently seeking clarity on the scope of the rule and the timeline for enforcement.
In a circular released last Friday, June 20, 2025, the SEC announced that directors of all Capital Market Operators (CMOs) classified as “significant public interest entities” will now be subject to stringent tenure limits. Specifically, the new rule stipulates that directors may serve a maximum of 10 consecutive years in the same company and 12 consecutive years within the same group structure.
What the SEC Is Saying
The Commission also introduced a three-year “cool-off period” for Chief Executive Officers (CEOs) and Executive Directors (EDs) who complete their maximum tenure, before they can assume the role of Board Chairman. Even then, their term as Chairman is limited to four years.
The directive, which took immediate effect, has generated confusion among market participants, particularly regarding the definition of “significant public interest entities.” Many fear that the measure could result in the abrupt exit of long-serving executives who have played pivotal roles in the growth of Nigeria’s capital market institutions.
- One industry source commented: “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 added: “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.”
Although SEC plays an established role in the approval of board appointments—including those of directors, CEOs, and Independent Non-Executive Directors (INEDs)—the new rule signals a shift toward stricter oversight and corporate governance enforcement.
The phrasing in the circular, stating that classification as a significant public interest CMO is “as determined by the Commission,” has only fueled further speculation about who may be impacted.
- Sources familiar with the circular have clarified that it does not apply to publicly listed companies such as commercial banks or traditional private firms.
- Rather, the rule is expected to affect Financial Market Infrastructure (FMI) entities, including FMDQ Group, NGX Group, Central Securities Clearing System (CSCS), and NG Clearing.
Further clarifications are expected from the SEC in the coming days.
INED-to-ED Conversions Prohibited
Another critical component of the circular is the ban on converting Independent Non-Executive Directors (INEDs) into Executive Directors within the same company or group.
- The circular notes: “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.”
- It emphasized that such conversions “erode the neutrality” of independent directors and undermine their ability to provide objective board oversight.
Henceforth, capital market operators and public companies are prohibited from transitioning INEDs into executive roles within their organization or any affiliated entity in the group.
The National Code of Corporate Governance (NCCG) already limits INEDs to three terms of three years each (9 years) and outlines eligibility criteria, such as:
- No more than 0.01% shareholding
- No close ties to existing executives or major shareholders
- No past employment within the group
- No prior extended board service that would compromise independence
It also forbids reclassifying a non-executive director as an INED, ensuring that board independence remains credible and unambiguous.
However, legal debates over the Code’s enforceability persist. A ruling by the Federal High Court in Eko Hotels v. FRCN questioned its applicability to unregulated private companies, further complicating interpretation of the SEC’s new mandate.
Industry Reactions
In response to the directive, the Association of Securities Dealing Houses of Nigeria (ASHON) issued a statement aimed at easing concerns 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 stated.
- “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 detailed clarification from the SEC, the directive signals the regulator’s intent to tighten corporate governance standards and improve accountability within Nigeria’s capital markets.
