SEC’s New Minimum Capital Requirements Face Pushback From Market Experts

…Stakeholders Propose Risk-Based Framework For Nigerian Capital Market

Capital market experts have warned that the Securities and Exchange Commission’s (SEC) proposed New Minimum Capital Requirements (NMCR) for regulated entities could unintentionally lead to market concentration, reduced competition, and the exclusion of retail investors if not carefully recalibrated.

The warning was issued at a high-level roundtable organised by the Capital Market Academics of Nigeria (CMAN), where stakeholders examined the implications of the SEC’s new capital framework and offered recommendations aimed at strengthening market stability while preserving inclusiveness.

In a communiqué issued at the end of the session and addressed to the Director-General of the SEC, CMAN acknowledged the Commission’s commitment to deepening and strengthening Nigeria’s capital market but urged a more risk-based and proportionate approach to capital regulation.

According to the academics, capital adequacy should be aligned with the actual risk profile of different categories of operators rather than adopting a one-size-fits-all model.

The roundtable, themed “Deconstructing the New Minimum Capital Requirements for Regulated Entities in Nigeria,” featured contributions from seasoned professionals and former regulators, including past president of the Chartered Institute of Bankers of Nigeria, Dr. Bayo Olugbemi; First Vice President of the Chartered Institute of Stockbrokers, Mrs. Fiona Ahimie; a board member of the SEC, Mr. Garba Kurfi; and past president of the CIS, Mr. Tunde Amolegbe. Other participants included Managing Director of Regius AM, Mrs. Yvonne Akintomide, a former SEC board member, Barrister Charles Udora, as well as Professors Chris Kalu and Lionel Effiiom.

One of the key concerns raised was the feasibility of the proposed June 30, 2027 compliance deadline.

CMAN noted that 2027 is an election year in Nigeria, a period typically associated with heightened political uncertainty and subdued investor confidence.

The group also pointed out that capital market operators are already contending with ongoing recapitalisation exercises in the banking, insurance, and pension sectors.

Against this backdrop, the academics recommended an extension of the deadline to December 2027 to allow operators raise capital under more favourable market conditions.

On the scale of the proposed capital increases, CMAN argued that while higher capital thresholds are justified given Nigeria’s economic realities and global regulatory trends, the magnitude of the increase for some operators, particularly broker-dealers, appears disproportionate to their risk exposure.

The group advised the SEC to further engage with market participants to reassess the proposed levels and ensure alignment with underlying risks.

The academics also raised concerns about potential regulatory arbitrage, urging the Commission to consider the implications of the NMCR in relation to provisions of the Companies and Allied Matters Act (CAMA) 2020 on Limited Liability Partnerships, which could be exploited to circumvent capital requirements.

In addition, CMAN called for greater clarity and flexibility in defining what constitutes qualifying capital.

The roundtable recommended that retained earnings be recognised as part of core capital, subject to appropriate verification, to reward firms that have grown sustainably through internal capital generation while maintaining prudential standards.

Another key issue highlighted was the need to distinguish between conventional and non-interest capital market operations within the NMCR framework.

Given their unique risk profiles, operational constraints, and restrictions on leverage and speculative activities, CMAN proposed separate capital thresholds or tiers for non-interest operators, particularly in portfolio and fund management, to ensure regulatory fairness and consistency.

The communiqué further cautioned that excessively high capital floors could accelerate consolidation in the industry, potentially crowding out smaller operators and limiting consumer choice.

To mitigate these risks, CMAN emphasised that capital requirements should be complemented by robust corporate governance, effective supervision, and greater adoption of technology, rather than relying solely on higher capital thresholds.

To ease the burden of recapitalisation and fast-track compliance, the academics recommended supportive regulatory measures, including possible fee waivers or discounts in collaboration with the Corporate Affairs Commission and other agencies, streamlined approval processes, and clearer guidance on mergers, acquisitions, and business combinations.

In its conclusion, CMAN commended the SEC for its proactive efforts to enhance the resilience of Nigeria’s capital market and reaffirmed its willingness to continue supporting the Commission through research and stakeholder engagement.

The group urged sustained dialogue and further clarifications to ensure that the new capital framework promotes innovation, inclusiveness, and long-term growth of the Nigerian capital market.

The communiqué was signed by Professor Uche Uwaleke, President of the Capital Market Academics of Nigeria.