On January 16, 2026, the Securities and Exchange Commission (SEC) of Nigeria issued Circular No. 26-1 (“Revised Minimum Capital (MC) for Regulated Capital Market Entities”), which substantially overhauled minimum capital requirements for a broad array of capital market operators, including fund and portfolio managers.
Shortly after publication, there was widespread concern over one provision in the framework namely, a perceived rule that would require fund managers with assets under management (AUM) above a given threshold to hold at least 10% of their assets under management as regulatory capital. Under a 10% requirement, a manager with assets under management of ₦1 trillion would, in theory, need capital of as much as ₦100 billion far exceeding the capital of many systemic financial institutions.
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In response to industry feedback, the Securities and Exchange Commission clarified and corrected the rule: the assets under management linked requirement is 0.1% of assets under management, not 10%, effectively shifting two decimal places to the left. This correction was confirmed in subsequent regulatory updates and market reports.
- The Legal Basis and Regulatory Framework
- Statutory Authority
The Securities and Exchange Commission’s mandate to regulate capital market operators including setting minimum capital thresholds stems from the Investment and Securities Act (ISA) and related regulations governing capital market licensing, systemic risk mitigation, and investor protection. The Investment and Securities Act empowers the Securities and Exchange Commission to prescribe prudential safeguards that ensure market resilience and protect investors. While the Circular itself is not primary legislation, it represents a delegated exercise of regulatory authority.
The Securities and Exchange Commission’s authority to issue such capital requirements is derived from the Investments and Securities Act, 2025. The Act empowers the SEC to:
- Regulate and develop the capital market;
- Protect investors and the integrity of the market;
- Set conditions, including capital adequacy, for licensed operators; and
- Issue rules, guidelines, and directives for orderly market conduct.
Securities and Exchange Commission Circulars like the 2026 Revised Minimum Capital regime are considered subordinate legislation under the Investments and Securities Act, 2025.
Circular No. 26-1: Structured Capital Regime
- Circular No. 26-1 introduces a tiered minimum capital regime:
- Tier 1 Fund/Portfolio Managers: Minimum capital; ₦5 billion, with a supplemental AUM requirement.
- Tier 2 Fund/Portfolio Managers: Minimum capital; ₦2 billion for limited-scope managers.
- Assets under management Supplement: Any fund manager with Net Asset Value / Assets under Management above ₦100 billion was initially interpreted to have to maintain capital equal to 10% of assets under management.
Other capital floors apply to other operators (e.g., brokers, dealers, underwriting houses, fintechs) to ensure systemic robustness.
- The “10% vs. 0.1%” Rule: What Changed Legally
- Initial Interpretation and Industry Reaction
When Circular No. 26-1 was first disseminated, the text appeared to include an assets under management-linked capital requirement of 10% of assets under management for large managers. This triggered alarm in financial markets:
- Industry operators argued that such a requirement was excessive, impracticable and inconsistent with the fiduciary nature of asset management (unlike banking).
- Analysts pointed out that a 10% regime could necessitate capital far above bank capital requirements for similar assets under management sizes, raising questions about regulatory proportionality and economic viability of fund businesses.
Some market analysts referred to the issue as a regulatory “blunder” a potential internal drafting error due to the dramatic market impact and mathematical absurdity of the 10% figure relative to global norms.
- Regulatory Correction to 0.1%
In response to stakeholder feedback and operational concerns, the Securities and Exchange Commission issued a correction clarifying that the applicable capital requirement for fund and portfolio managers is 0.1% of assets under management, not 10% dramatically reducing the effective burden.
The correction was not a legislative repeal but a regulatory clarification of intent that aligns the Circular with proportionate capital requirements consistent with operational risk, investor protection and international practice.
- Legal Implications
- Proportionality and Regulatory Legitimacy
The primary legal implication is regulatory proportionality:
- A 10% rule could be challenged as ultra vires or disproportionate relative to the SEC’s mandate especially given that asset managers do not take on principal risk akin to banks.
- By setting the requirement at 0.1%, the Securities and Exchange Commission reduces the risk of legal challenge for arbitrariness or abuse of discretion, aligning the policy with accepted principles of rational basis review under administrative law.
While Nigerian administrative procedure law does not have a formal U.S.-style “arbitrary and capricious” test, courts often consider whether a regulator oversteps its statutory authority or imposes measures incongruent with statutory purpose. The clarification helps reinforce that the Assets under management linkage is calibrated to operational risk, not punitive taxation of assets.
- Compliance Certainty and Legal Risk for Managers
With the corrected rule:
- Fund managers now have regulatory certainty on capital planning, reducing litigation risk.
- Compliance costs are materially lowered, reducing the likelihood of forced restructurings or exit strategies that would raise legal disputes (e.g., injunctions or judicial review applications).
- Firms can structure capital infusions, shareholder agreements and licensing strategies without fearing dramatic capital surcharges that could trigger shareholder or investor lawsuits.
This clarity reduces legal risk exposure and potential for disputes between operators and the Securities and Exchange Commission.
- Policy Consistency with Global Standards
The correction brings Nigeria’s capital regime closer to international norms where capital requirements are tied to operational scale rather than full asset values supporting legal defensibility and policy coherence with global regulators.
- Practical Enforcement and Compliance Landscape
Compliance Timeline and Transitional Arrangements
All regulated entities must comply by June 30, 2027, with transitional relief available at the Commission’s discretion. This indicates enforcement flexibility but reinforces that full compliance remains expected absent specific exemptions.
Potential Enforcement Actions
Failure to comply with capital requirements can lead to regulatory sanctions, including suspension or withdrawal of license. This has legal implications for operational continuity and governance obligations for fund managers.
- Conclusion
The Securities and Exchange Commission’s correction of the assets under management-linked capital requirement from 10% to 0.1% represents a significant legal and policy adjustment within Nigeria’s capital market regulation. The correction:
- Aligns the rule with statutory objectives of proportionality, investor protection, and market stability.
- Mitigates legal risk to fund managers and reduces the likelihood of regulatory challenges.
- Enhances compliance certainty and improves regulatory legitimacy.
For practitioners, the corrected framework offers a more predictable regulatory regime, but compliance obligations remain substantive and warrant proactive legal and business planning ahead of the 2027 deadline.
Reference Links
- SEC clarified capital requirement at 0.1% of AUM (Proshare)
- SEC corrects fund managers’ AUM capital rule (Nairametrics)
https://nairametrics.com/2026/01/17/sec-corrects-fund-managers-aum-capital-rule-from-10-to-0-1/
- Full text capital requirements schedule (SEC Nigeria)
- SEC Circular No. 261 (2026) – Revised minimum capital requirements issued pursuant to ISA 2025.
https://sec.gov.ng/documents/1427/CIRCULAR_Number_261._Minimum_Capital_Requirements.pdf?utm
- Investments and Securities Act, 2025 – Legal basis for SEC authority over capital market operators. https://sec.gov.ng/documents/1319/Investments_and_Securities_Act_2025_x9rSXtI.pdf?utm
- SEC Corrects AUM Rule from 10% to 0.1% – Industry sources explaining the correction and implications. https://nairametrics.com/2026/01/17/sec-corrects-fund-managers-aum-capital-rule-from-10-to-0-1/
- SEC Clarifies Capital Rule – Local reporting on correction and background of the policy change. https://nigeriannewsdirect.com/sec-clarifies-capital-rule-for-fund-managers-reduces-aum-requirement-to-0-1/?utm_
AUTHORS
Taiwo D. Adedoyin
Executive Associate.
Lateepha Dauda
Associate.