SEC Establishes N7b Minimum for Issuing Houses and N2b for Trustees

The Securities and Exchange Commission (SEC) has implemented a significant reform aimed at bolstering market resilience and safeguarding investors by establishing new minimum capital thresholds. As part of these new regulations, the SEC has set the minimum capital requirement for issuing houses engaged in underwriting services at N7 billion.

Additionally, a mandate of N2 billion has been set for non-underwriting issuing houses, as well as for trustees. In a circular released on Friday, the SEC indicated that this adjustment was made to ensure regulatory capital corresponds with the complexity, scope, and risk exposure of activities that are regulated. It also aims to enhance market stability, reduce systemic risk, and facilitate innovation, particularly concerning digital assets and commodities markets.

These updated requirements are applicable to all entities regulated by the SEC, which encompass core and non-core capital market operators, market infrastructure organisations, capital market consultants, financial technology service providers, virtual asset service operators, and intermediaries in commodity markets.

With these new capital standards, brokers executing client transactions must now maintain a minimum capital of N600 million, a rise from the previous N200 million. Furthermore, dealers engaged in proprietary trading will be required to hold N1 billion instead of the earlier N100 million.

Broker-dealers offering integrated services, such as advisory and margin lending, must now meet a capital threshold of N2 billion, up from N300 million. Inter-dealer brokers are also subject to the new requirement, which is now N2 billion, compared to the earlier N50 million.

For those in fund and portfolio management, top-tier portfolio managers managing assets over N20 billion must retain N5 billion, a notable increase from N150 million, while second-tier managers will need to possess N2 billion. Additionally, private equity fund managers must now maintain a capital base of N500 million, while venture capital fund managers are required to hold N200 million.

The review extends beyond issuing houses and trustees; it also adjusts the capital requirements for registrars to N2.5 billion and rating agencies to N500 million, an increase from N150 million. For underwriters, the new requirement is N5 billion. Corporate investment advisors must now hold between N5 million and N50 million, while individual advisors will need between N2 million and N10 million.

Moreover, market infrastructure institutions have also been impacted. Central counterparties are now mandated to have N10 billion, while clearing and settlement entities require N5 billion, and composite securities exchanges must secure N10 billion.

In terms of digital asset firms, the SEC has established new thresholds, necessitating that digital asset exchanges and custodians each have N2 billion. Additionally, digital asset offering platforms are required to maintain N1 billion. For fintech providers, robo-advisers will now have to keep N100 million, an increase from N10 million, and crowdfunding intermediaries must hold N200 million as opposed to the previous N100 million.

Commodity market intermediaries are now facing higher capital requirements as well, with warehousing operators needing to maintain capital of up to N500 million and collateral management companies, particularly those with national or international operations, required to have N500 million, rising from N50 million. The capital standards for market consultants have also been revised to N25 million for corporate entities, N2 million for individuals, and N10 million for partnerships.

The SEC has indicated that all entities impacted by these changes must comply with the updated minimum capital requirements by June 30, 2027. Failure to adhere within this timeline may result in regulatory actions, which could include the suspension or revocation of registration, as the SEC will determine appropriate measures.

The commission also acknowledged that transitional arrangements might be applied on a case-by-case basis upon valid request. Further guidance on compliance and capital verification procedures will be disseminated in due course, as these new regulations take effect from the date of their publication.