Legal and institutional frameworks for capital market regulation in Nigeria: recasting the agendas beyond compliance-based regulation

Date04 March 2021
Published date04 March 2021
Subject MatterAccounting & finance,Financial risk/company failure,Financial crime
AuthorEdith O. Nwosu,Collins C. Ajibo,Uchechukwu Nwoke,Ikenna Okoli
Legal and institutional
frameworks for capital market
regulation in Nigeria: recasting
the agendas beyond
compliance-based regulation
Edith O. Nwosu and Collins C. Ajibo
Department of Property Law, Faculty of Law,
University of Nigeria, Enugu, Nigeria
Uchechukwu Nwoke
Department of Commercial and Corporate Law, Faculty of Law,
University of Nigeria, Enugu, Nigeria, and
Ikenna Okoli
Department of Private Law, Faculty of Law,
University of Nigeria, Enugu, Nigeria
Purpose The purpose of the paper is to explore the legal and institutional frameworks for optimal
regulation of capital market beyond compliance-based regulation, to enable the market to deliver on its
strategicrole as the enabler of eff‌icient allocation of resources and economicgrowth.
Design/methodology/approach The paper relies on doctrinal approach to assess the existing
regulatoryapproaches and prospects for the future.
Findings The paper found that the regulatory authorities unduly concentrate on compliance-based and
sanction-based regimes without suff‌icient emphasis on innovations and transformative soluti ons that foster
diversif‌ication and eff‌iciency in the market. The paper also found that the deployment of innovations and
transformative solutions complemented with robust regulation is positively correlated with capital market growth.
Originality/value The paper offers fresh insights on the optimal approaches to regulation of capital
market that transcend compliance-based and sanction-based regimes to reliance on innovative tools that
expand, diversifyand effectuate the functionality and utility of capitalmarket.
Keywords Legal, Institutional, Frameworks, Regulation, Capital market, Reforms
Paper type Research paper
1. Introduction
The nature of legal and institutional frameworks of securities regulation is fundamental to capital
market development [1]. A robust legal framework and an eff‌icient institution that ensures the
application of a network of formal binding laws and informal soft laws promote market
conf‌idence (Milano and Zugliani, 2019). The overall responsibility for the development of the
This Research was funded by the TETFund National Research Fund 2019.
The authors take responsibility for any errors in this paper
Journalof Financial Crime
Vol.28 No. 2, 2021
pp. 448-463
© Emerald Publishing Limited
DOI 10.1108/JFC-07-2020-0142
The current issue and full text archive of this journal is available on Emerald Insight at:
regulatory framework and the supervision of regulated entities lies with a public agency
cemented through extant statutes [2]. The Securities and Exchange Commission (SEC) is
prominent in Nigeria as the apex regulator supplemented by other regulatory agencies such
as the Federal Competition and Consumer Protection Commission (FCCPC), Corporate Affairs
Commission (CAC) and Nigerian Stock Exchange (NSE) in turn regulated by SEC. While the
structure of the securities markets regulator may vary from a single-agency specialized in
securities regulation to a unif‌ied regulator that regulates morethan one sector, what is paramount
for most jurisdictions is the eff‌icient outcome. A sound regulatory framework ensures that the
regulator has suff‌icient powers, resources and independence to effectively regulate market
participants. Consistent with most jurisdictions, self-regulatory organizations (SROs) such as
NSE and industry associations undertake some aspects of the regulatory function
complementing the role of the apex regulator. In turn, the regulatory framework ensures proper
oversight of SROs by the public regulator for optimal performance. Public regulation materializes
into public enforcement and supplemented by private enforcement to maintain market conf‌idence
and assure investors that their investment will not be expropriated and lost through poor
regulation. The consistent regulatory failure in the capital market should awaken discussion on
the balance of immunity and liability of the regulators, the balance of civil and criminal sanctions
(Lomnicka, 2002) and the balance between rules-based system and principles-based systems and
the underlying complementarities.
Despite consistent efforts, the regulation of the capital market continues to encounter
numerous constraints,prominent among of which include the following:
challenges of market integrity and abuse;
poor regulatory infrastructure;
low market incentives; and
barriers to market development (Kiyingi and Uwaifo, 2015).
Equally, SEC concedes that the capital market still suffers from a number of drawbacks as
capital market compares less competitively to almost all peer countries in terms of
size, liquidity, depth and breadth;
market capitalization to gross domestic product (GDP) is still very low at over 16%
compared to 207% in South Africa; and
weak domestic investor base illustrated by the low ratio of net asset value (NAV) to
GDP at only a little over 0.2% (SEC, 2015a).
While the Capital Market Master Plan 20152025 seeks to eliminate these challenges
through the transformation of the market contribution to the national economy, market
structure, competitiveness and regulation and oversight (SEC, 2015b), challenges remain
raising questions about the adequacy and competency of extant legal and institutional
frameworks for the regulation of the market [3]. Against this backdrop, it is imperative to
explore the legal and institutional frameworks which underlie capital market regulation
with a view to identifying options for better regulatory outcome. It is contended that the
regulation of capital market should not be based on disproportionate focus on compliance-
based regulation and sanction-based regulation but also on corresponding attention to
market innovation and creativity that facilitate the diversif‌ication and liquidity of the
market, thereby reinforcingthe role of the capital market as a place for eff‌icient allocation of
resources to f‌inance householdneeds, stimulate businesses and engender economic growth.
Capital market

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