Guidance Note on Board Appointments and Director Tenure for Capital Market Operators and Public Companies

1. Purpose of this Guidance  
   

This guidance is issued to Capital Market Operators (CMOs) and Public Liability Companies (PLCs) in Nigeria following the Commission’s recent Circular addressed to Public Companies and Significant Public Interest Capital Market Operators on the governance and tenure of directors in capital market entities. It sets out how the requirements apply, and offers interpretative support reflecting the Commission’s commitment to promoting sound governance, effective oversight and long-term market stability.
2. Scope and Application
This guidance note applies to CMOs that operate Financial Market Infrastructures (FMIs) and have been determined by the Commission to be Significant Public Interest Entities (SPIEs). Specific provisions that apply to PLCs will be so indicated. It does not apply to private companies or other CMOs not designated as such by the Commission. Other CMOs that fall outside this scope are not required to comply, but may wish to adopt the standards set out in this guidance as a matter of best practice, particularly where they are systemically relevant or aspiring to enhanced governance maturity.
3. Policy Background
The Commission has observed an increasing pattern of rotation and cross-appointment among board members within the same corporate group, particularly the transmutation of Independent Non-Executive Directors (INEDs) into Executive Directors (EDs), including their elevation to Chief Executive Officer (CEO) roles. This practice raises serious concerns regarding the independence, objectivity, and governance safeguards that INEDs are meant to provide. Independent directors play a crucial role challenging executive management and upholding the integrity of board decisions. Their transformation into executive roles within the same entity or group undermines that function. To promote integrity and sustainability in board leadership, the Commission has therefore directed enhanced restrictions on board appointments and tenure among FMIs classified as public interest entities.
4. Definitions
Significant Public Interest Entity (SPIE):
For the purpose of this guidance, a PIE refers to a Capital Market Operator whose operations are of systemic importance, have significant investor exposure, or serve a critical infrastructure function within the capital market, as determined by the Commission. Financial Market Infrastructure (FMI):
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. Independent Non-Executive Director (INED):
A director who does not participate in the day-to-day management of the company and has no relationships or interests that may materially affect their ability to exercise objective judgment as elaborated in the Nigerian Code of Corporate Governance 2018 (NCCG). Executive Director (ED ):
A member of the board involved in the daily management and operations of the company.
Cool-off Period:
A regulatory interval during which a former executive must abstain from assuming a leadership or oversight role to ensure independence and prevent conflicts of interest.
5. Key Directives
a. Prohibition of Transmutation of INEDs:
INEDs may not be appointed as Executive Directors, including CEO roles, within the same company or group structure. This aims to protect the independence of board oversight and maintain clear separation between oversight and executive functions. This is now in effect and mandatory for FMIs classified as public interest entities and PLCs b. Board Tenure Limits:
Directors may serve a maximum of 10 years within the same company.
Within a group structure, a combined total of 12 years is permitted.
All years already served count toward these limits.
This is now in effect and mandatory for FMIs classified as public interest entities. PLCs are mandated to adhere to the provisions of the Nigerian Code of Corporate Governance (NCCG) 2018.
c. Restrictions on Former Executives Becoming Chairman:
A former CEO or Executive Director who has reached their tenure limit may not be appointed as Chairman until after a 3-year cooling-off period. If appointed, their tenure as Chairman is limited to a maximum of 4 years. This is now in effect and mandatory for FMIs classified as public interest entities. PLCs are mandated to adhere to the provisions of the Nigerian Code of Corporate Governance (NCCG) 2018.
6. Purpose of the Directives
The objectives of these governance standards are to:
Support orderly and transparent board succession planning; Ensure continuity and independence in the oversight of FMIs; Promote effective corporate governance aligned with global regulatory expectations; Reinforce public and investor confidence in the leadership of FMIs.
7. Expectations for Other CMOs
Although not binding on non-FMI CMOs or private companies, the Commission encourages all operators to consider this guidance as an emerging standard of good practice. Strong governance contributes to risk mitigation, investor protection, and long-term operational resilience. CMOs seeking to align with international best practice, improve market standing, or prepare for future designation as public interest entities should consider adopting similar tenure and independence safeguards.
8. Next Steps
FMIs classified as significant public interest entities and all CMOs should refrain from the transmutation of INEDs into executive roles. This provision also applies to all CMOs.
In addition, FMIs classified as significant public interest entities should:
Review current and proposed board structures for compliance; Update board succession plans in line with the 10/12-year limits and cool-off periods; Maintain records and notify the Commission where significant governance changes are being planned or implemented. For any questions regarding interpretation or applicability of this guidance, please email:
emidivision@sec.gov.ng