The Investments and Securities Act 2025: A Game Changer in Nigeria's Capital Market?

On March 31, 2025, President Bola Ahmed Tinubu signed the Investments and Securities Act (ISA), 2025 (the ISA 2025 or the Act), into law, heralding a new chapter in Nigeria’s capital market regulation. The ISA 2025 repeals the ISA 2007 and introduces laudable reforms aimed at enhancing investor protection, strengthening market oversight, boosting capital formation, and economic growth, and aligning Nigeria’s capital markets with international best practices.

Given the transformative nature of the ISA 2025, the new legislation is expected to establish a robust regulatory system in Nigeria, attract foreign and local investments, and ultimately boost the Nigerian economy. The ISA 2025 is also expected to make investments safer and allow more innovative products, thereby strengthening investor protection and fostering transparency in the capital market. In this article, we explore major highlights of the ISA 2025 and its implications on Nigeria’s Capital Markets.

Highlights of the ISA 2025
Strengthened Regulatory Powers and Oversight One of the notable changes of the ISA 2025 is the expansion of the regulatory powers and oversight of the Securities and Exchange Commission (SEC) to a great extent. The Act has expanded the regulatory powers of the SEC to include:
(a) The registration and regulation of virtual and digital asset exchanges, virtual asset service providers, and digital asset operators
(b) Registration and regulation of commodities exchanges, credit enhancement facility providers, and online forex trading activities, platforms, and intermediaries
(c) Entering and sealing up all prohibited schemes and obtaining an order of the tribunal or a court to freeze and forfeit all assets of such schemes to the Federal Government of Nigeria
(d) Obtaining subscriber records held by internet service providers and telephone service providers
(e) Compelling physical attendance for statement or testimony under oath
(f) Freezing assets of any person or firm being investigated for capital market infractions pending the outcome of the investigation
(g) Intervention in the management and control of capital market operators, public companies and regulated entities that have acted in a manner detrimental to the interest of its investors, shareholders, or committed serious corporate governance violations, including entering into their premises and doing whatsoever it deems necessary in the interest of the public and for the protection of investors and
(h) Appointing independent directors to the boards of public companies placing directors of public companies on probation and removing any person associated with misconduct or mismanagement of a public
company or capital market operator, amongst others.

The strengthened legal framework and powers of the SEC under the ISA 2025 are aimed at putting Nigeria’s capital markets regulations in line with international best practices and standards under the International Organization of Securities Commissions (IOSCO) Enhanced Multilateral Memorandum of Understanding (EMMoU)15 and enhancing Nigeria’s attractiveness to international investors. This conformity with the IOSCO’s EMMOU enables the SEC to maintain its ‘Signatory A’ status with the IOSCO, thereby boosting investor confidence.

Recognition of Digital Assets

The ISA 2025 has extended the definition of securities to include virtual and digital assets. While digital assets were recognized under the SEC’s New Rules on Issuance, Offering Platforms and Custody of Digital Assets for the regulation of digital assets in Nigeria 2022, the ISA 2007 contained no express provision empowering the Commission to regulate digital and asset exchanges. The ISA 2025 now empowers the SEC to perform regulatory oversight on Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs), and Digital Asset Exchanges. This represents a significant shift from the ISA 2007, which limited securities to government or corporate bonds, stocks, and debentures. It is a testament to the determination to ensure that the ISA 2025 aligns Nigeria’s capital market regulatory framework with other jurisdictions. This innovation establishes a clear regulator for digital assets and thereby encourages more domestic and foreign investment in digital/virtual assets in Nigeria and curbs fraudulent activities.

Segregation of Securities Exchanges

Section 27(1) of the ISA 2025 categories securities exchanges as Composite Exchange and Non-Composite Exchange. The Composite Exchange permits the listing of all types of securities on its platform, while
the Non-Composite Exchange focuses on specific securities listing. This classification establishes market specialisation, allows SEC to apply tailored rules, ensuring that the exchanges meet standards appropriate to
the instruments they can handle, and reduces systemic risks by preventing cascading failures across the entire financial system.

Provision of Support for Local and State Governments

Section 269 of the ISA 2025 permits Local and State governments to issue debt securities, such as bonds, promissory notes, and non-interest financial instruments, to fund infrastructure projects, and prescribes requirements to be met by Local and State governments prior to the issuance of debt securities. This innovation allows states and local governments to finance infrastructure projects, such as roads, housing,
healthcare, and education, without primarily relying on federal government support.

Expansion of Categories of Issuers Permitted to Raise Funds

Section 95 of the ISA 2025 expands the categories of issuers permitted to issue securities to the public to raise funds, subject to the SEC’s approval. The ISA 2007 limited this category to public companies and statutory bodies or banks. However, the ISA 2025 has included entities such as collective investment scheme, government or government agency bodies, free trade zones, and entities licensed by the Central Bank of Nigeria. This allows more entities to raise capital via equity as against debt and increases liquidity in Nigeria’s capital markets.

Stronger Investor Protection and Market Integrity

Section 198 of the ISA 2025 provides for the Investor Protection Fund (IPF), which broadens investors’ compensation to include cases arising from the revocation or cancellation of the registration of a dealing member’s firm. Under the ISA 2007, the compensation was limited to cases of bankruptcy, insolvency, negligence, and defalcation committed by a dealing member’s firm. This change helps boost investors’ confidence in the Nigerian capital markets and ensures financial security in the event of market disruptions. The Act under Section 196 introduced stringent penalties for prohibited schemes and other fraudulent activities. It mandates punishment of ten (10) years, or NGN20,000,000, or both for people engaged in such schemes. Section 357 of the Act defines Prohibited Schemes as Ponzi or pyramid schemes. These provisions were absent in ISA 2007, and their inclusion in the Act is a positive measure to curb the increase in Ponzi scheme activities in Nigeria and increase investors’ confidence in the capital markets.

Management of Systemic Risks

Under the ISA 2025, the SEC is empowered to take steps to manage systemic risks within the capital market. Such steps include issuing directives to capital market participants for the management of systemic risks, collaborating with other supervisory authorities, and requesting the submission of information or documents as it concerns the management of systemic risks. These provisions bolster market resilience to sudden volatility.

Legal Entity Identifier

Section 123 of the ISA 2025 introduced the Legal Entity Identifier (LEI) for entities involved in securities transactions. This aims to monitor and minimize systemic risks arising from the activities of parties in securities transactions. The introduction of this provision in the ISA 2025 is a step in the right direction as it improves transparency in capital market transactions and ensures Nigeria’s capital market aligns with the cross-border regulatory framework.

Revision of the Structure and Appointment Process of The Investments and Securities Tribunal

The Act introduced reforms to the composition, appointment, and jurisdiction of the Tribunal. Members of the Tribunal are now appointed by the President on the recommendation of the Minister.

The Implications of the ISA 2025 for Nigeria’s Capital Market
Financial Crime/Ponzi Scheme

Over the years, Nigeria’s capital market has faced several challenges, including low investor confidence, reduced market participation, and significant obstacles in the recovery
of fraudulently obtained investor funds. In response to these issues, the ISA 2025 prohibits fraudulent investment schemes, prescribes punishment for promoters of such prohibited schemes, and increases the compensation of investors under the IPF. Additionally, the ability to revoke or cancel a dealing member firm’s registration, along with the SEC’s authority to create a nationwide trust scheme for compensating investors whose losses are not covered by the Investor Protection Fund (IPF), reinforces a strong emphasis on investor protection under the new Act. Implementation of these reforms is expected to enhance market integrity, boost investor participation, and contribute to Nigeria’s capital markets and economic development.

Virtual and Digital Asset

The ISA 2025 marks a significant turning point in Nigeria’s fintech industry and the capital market. The recognition of virtual and digital assets as securities vests the SEC with clear jurisdictional authority to regulate these assets and imposes compliance obligations on all market participants dealing in digital assets. This innovation will diversify offerings in the Nigerian capital markets, attract tech-savvy investors and diaspora capital, create an alternative capital raising option for businesses across industries, apart from obtaining bank loans and initial public offerings; and make the market more competitive, inclusive and innovation- riendly. To achieve the foregoing, it is expected that the SEC, the Central Bank of Nigeria, the Corporate Affairs Commission and other relevant regulators in the Nigerian finance industry will collaborate to ensure
the ease of compliance of fintech businesses with the Act and prevent regulatory conflicts or disputes, given the uncertain regulatory disposition to digital assets before the passage of the Act into law. Alignment with International Standards

The expansion of the powers of the SEC in the Act aligns with international best practices and standards under IOSCO EMMoU. The EMMOU was established in 2016 to supplement the Multilateral Memorandum of Understanding, ‘to ensure continued effectiveness in safeguarding market integrity and stability, protecting investors and deterring misconduct and fraud’.32 The key highlights in the EMMoU were additional powers to:
i. Compel physical attendance for testimony.
ii. Free assets if possible or provide information on how to freeze assets.
iii. Obtain and share existing Internet service provider (ISP) records.
iv. Obtain and share existing telephone records.
v. obtain and share audit work papers, communications, and other information relating to the audit or review of financial statements

These additional powers are contained in Articles 3(2)(b)(v), (c), (d), (3)(i), and (ii) of the EMMoU Text. The ISA 2025 provides similar provisions. For example, Section 3(4)(j) of the Act empowers the SEC to obtain subscriber records of individuals and firms held by internet service providers, telephone service providers and other electronic communications providers. The alignment with international standards will also improve Nigeria’s capital markets regulatory reputation, encourage foreign listings, and attract foreign portfolio and institutional investors who naturally look out for jurisdictions with strong legal and regulatory frameworks.

Conclusion
The ISA 2025 is a game changer for Nigeria’s capital markets. With the expansion of the regulatory powers of the SEC, formal recognition and regulation of digital securities, outlawing of Ponzi and pyramid schemes, and incorporation of principles consistent with global benchmarks, it is expected that the ISA 2025 will catalyze more investments in Nigeria’s capital markets. Ultimately, we recommend swift development of implementation guidelines for its technology-related aspects, stakeholder collaboration, and market education to unlock its full potential.