Introduction

The Securities and Exchange Commission (SEC) via a circular dated 19th of June 2025 (the “Circular”) issued guidelines to regulate the transmutation of directors of public companies and Capital Market Operators (CMO).¹ The Circular was released in response to what the SEC described as “a worrying trend” of transmuting Independent Non-Executive Directors (INED) to Executive Directors (ED), and to the position of the Chief Executive Officer within the same company or group structure.

Highlights of the circular

The Circular was issued pursuant to the powers conferred on the SEC to prescribe corporate governance standards for regulated entities² and provides for the following governance issues:

a. The prohibition of transmutation of INEDs to EDs: The Circular recognizes that the practice of transmuting INEDs to ED contradicts the principles enshrined in the Nigerian Code of Corporate Governance, 2018 and erodes the neutrality of INEDs. Thereby compromising their ability to provide unbiased judgment. INEDs on the board of public companies and CMOs are barred from assuming any executive role in the company or within the group structure.

b. Introduction of board tenure limits: The Circular also capped the tenure of Directors of CMOs considered as Significant Public Interest Entities (SPIEs) to 10 consecutive years in the same company and 12 years within the same group structure. The years already served on the board, as of date, will count towards computing the exit date of the director.

c. Introduction of restrictions for transition from ED to board chairman: A former ED who has served their tenure is now mandated to observe a cool-off period of 3 years before they are eligible to be appointed to the board as chairman. The tenure of such a Chairman shall be for a maximum of 4 years and no more.

Application of the circular

Following the publication of the Circular, certain grey areas were identified, especially concerning the definition of SPIEs and the scope of the Circular’s application. To clear any ambiguities, the SEC on 1st July 2025 issued a Guidance Note to CMOs and public companies (the “Guidance Note”). The Guidance Note defines SPIEs as a CMO whose operations are of systemic importance, have significant investor exposure, or serve a critical infrastructure function within the capital market, as determined by the SEC.

The Guidance Note also limits the application of the Circular to CMOs that operate Financial Market Infrastructures (FMIs)³ and have been determined by the Commission to be SPIEs. Notwithstanding that private companies and other CMOs are excluded from the mandatory scope of the Circular, they are encouraged to adopt the guidance as an emerging standard of good practice, particularly if they aim to align with international standards, enhance their market reputation, or prepare for potential future designation as SPIEs.

Conclusion

By restricting transmutation of INEDs, the Circular seeks to ensure that the independence of INEDs is not influenced by the possibility of a return to the board in any other capacity. The prohibition will also discourage the recycling of directors within the same company or group structure.

The introduction of tenure limits and a cool-off period for the transition from ED to board chairman also align with best practices and would certainly enhance governance practices. The entities affected are therefore expected to review the composition of their boards to align with the circular.

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1. The SEC Circular on Transmutation of Independent Non-Executive Directors and Tenure of Directors – accessible at https://sec.gov.ng/guidance-note-to-capital-market-operators-and-public-companies-on-the-circular-regarding-board-appointments-and-director-tenure/
2. Section 355 (r) (iv) of the Investments and Securities Act (ISA) 2025
3. The Guidance Note defines FMIs as entities that facilitate clearing, settlement, trading, or data functions in the capital market. This includes but is not restricted to all exchanges, central securities depositories, clearing houses and trade repositories.