New vista for capital market regulation — Business — The Guardian Nigeria News – Nigeria and World News

The new Investments and Securities Act (ISA) is expected to strengthen the Securities and Exchange Commission (SEC) and grant it expanded power to combat insider trading, market manipulation and fraudulent investment schemes, HELEN OJI writes.

The capital market is, hopefully, set for a transformation as President Bola Ahmed Tinubu signed the Investments and Securities Act (ISA) 2025 into law. The landmark legislation introduced sweeping reforms that will enhance regulatory oversight, strengthen investor protection and foster transparency, aligning the market with global best practices.

With the enactment of the ISA 2025, the Securities and Exchange Commission (SEC) has been reaffirmed as the apex regulator of the Nigerian capital market, now equipped with broader enforcement powers to tackle violations such as insider trading, market manipulation, and fraudulent investment schemes.

The new law empowers the SEC to act decisively against Ponzi schemes and other illegal activities, imposing severe penalties on promoters of such schemes, including a minimum fine of N20 million or a 10-year prison sentence or both.

Stronger oversight, greater market confidence
The ISA 2025 significantly expands the SEC’s regulatory scope, particularly in the fast-growing digital asset space. By officially recognising virtual assets and investment contracts as securities, the Act brings Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs), and Digital Asset Exchanges under regulatory oversight. This move is expected to curb fraudulent activities in the cryptocurrency market while fostering trust and innovation in blockchain technologies.

Another critical reform introduced by the Act is the classification of securities exchanges into composite and non-composite exchanges. A composite exchange allows all categories of securities and products to be listed and traded, while a non-composite exchange focuses on a specific type of security. This distinction will create a more structured and efficient capital market that caters to diverse investor needs.

Boosting capital formation and economic growth
The Act also paved the way for sub-national entities, such as state and local governments, to raise funds through the capital market.

This means that states and municipalities can now finance infrastructure projects, such as roads, healthcare, and education, without solely relying on federal allocations or traditional debt. This increased financial autonomy is expected to stimulate economic growth and development across Nigeria.

Another game-changer is the introduction of a robust legal framework for commodities exchanges and warehouse receipts.

By regulating commodities trading, Nigeria is set to enhance price discovery, encourage investment in agricultural production, and provide farmers with better access to financing. This move positions Nigeria as a key player in Africa’s agricultural and resource-based economy.

To improve market transparency, the ISA 2025 mandates the use of Legal Entity Identifiers (LEIs) for capital market transactions, allowing for better tracking of financial activities and reducing fraud risks.

Further, it expands the categories of issuers permitted to raise funds, allowing for a wider range of innovative financial instruments subject to SEC approval.

Stronger investor protection and market integrity
Investor confidence is at the core of these reforms. The Investor Protection Fund (IPF) has been enhanced to provide compensation to investors who suffer financial losses due to the revocation or cancellation of a dealing member firm’s registration.

Previously, such compensation was limited to cases of bankruptcy, insolvency, or negligence. This change ensures greater financial security for investors in the event of market disruptions.

The Investments and Securities Tribunal (IST), responsible for resolving capital market disputes, has also been strengthened. Amendments to its composition, jurisdiction, and appointment process are designed to improve its efficiency, ensuring that investors have swift access to legal recourse in cases of regulatory breaches or market misconduct.

A milestone legislation
Stakeholders across Nigeria’s financial landscape have welcomed the new legislation as a turning point for the capital market, expressing optimism about the Act’s potential to transform market operations, expand investment opportunities, and ensure a more transparent and efficient financial ecosystem.

The Director-General of the SEC, Dr Emomoitimi Agama, described it as a transformative step that aligned Nigeria’s market with the International Organisation of Securities Commissions’ (IOSCO)’s Enhanced Multilateral Memorandum of Understanding (EMMoU). This ensures that Nigeria retains its “Signatory A” status, making the country more attractive to foreign investors.

President and Chairman of the Council of the Chartered Institute of Stockbrokers (CIS), Oluropo Dada, described the Act as a testament to Nigeria’s commitment to capital market advancement.

He emphasised that the new law would foster transparency, efficiency and stability, positioning the market as a key driver of economic growth.

According to him, the ISA 2025 provides a robust platform for attracting global investments, reinforcing the government’s dedication to creating an enabling environment for both local and foreign investors.

Chairman of the Association of Securities Dealing Houses of Nigeria (ASHON), Sam Onukwue, also highlighted the transformative impact of the Act.

He noted that the strengthened regulatory oversight and enhanced investor protection measures would boost market confidence, while the expansion beyond traditional equities and fixed-income securities would open new opportunities for market operators and investors.

The widened scope of investment vehicles, he argued, would diversify Nigeria’s capital market, making it more resilient and attractive to a broader range of participants.
With the rise of digital financial products, investor protection in the digital space has become a pressing concern.

Addressing this issue, Eguarekhide Longe, MD of NASD, emphasised the importance of ISA 2025 in regulating virtual assets and ensuring fraud detection and systemic risk management.

He praised the Act for recognising digital assets as securities, ensuring they fall under the regulatory oversight of the Securities and Exchange Commission (SEC).

This, he believes, will bring clarity and security to the growing digital investment space, safeguarding investors from potential risks associated with unregulated digital asset operations.

Beyond securities and digital assets, the ISA 2025 also strengthens the framework for commodities trading and financial market infrastructure.

To this effect, the managing director of the Lagos Commodities and Futures Exchange (LCFE), Akin Akeredolu-Ale, highlighted how the Act positions the capital market as a key economic indicator.

He noted that a strong legal framework is essential for sustained market growth and economic stability, and with the ISA 2025, Nigeria now has the legislative backing to deepen its capital market and drive economic development.

What changed
ISA 2025 represented a significant advancement over ISA 2007, introducing reforms that enhance regulatory oversight, investor protection, and financial market innovation. One of the most notable improvements is the expansion of the Securities and Exchange Commission’s (SEC)’s regulatory powers.

Under the ISA 2007, the SEC had broad oversight but lacked sufficient enforcement tools to curb fraudulent activities effectively.

The ISA 2025 strengthened the SEC’s ability to detect, investigate, and penalise violations such as insider trading, market manipulation, and illegal investment schemes.

It also aligned Nigeria’s capital market with international regulatory standards, ensuring compliance with IOSCO’s Enhanced Multilateral Memorandum of Understanding (EMMoU).

A major gap in the ISA 2007 was the absence of a legal framework for digital assets, leaving cryptocurrencies, Virtual Asset Service Providers (VASPs), and other blockchain-based financial products in a regulatory gray area.

The ISA 2025 explicitly classifies digital assets and investment contracts as securities, bringing VASPs, Digital Asset Operators (DAOs), and Digital Asset Exchanges under SEC’s regulatory supervision.

This provision ensures market stability while fostering innovation in Nigeria’s growing fintech ecosystem.

Another significant improvement is the introduction of securities exchange classification. Unlike the ISA 2007, which treated all securities exchanges uniformly, the ISA 2025 categorizes them into Composite and Non-Composite Exchanges.

Composite exchanges can trade all types of securities, while non-composite exchanges focus on specific asset classes.

This distinction allows for a more structured and efficient market, catering to the diverse needs of investors and issuers.

Additionally, the new Act strengthens financial market infrastructures, including clearinghouses and trade depositories, further enhancing market stability.

Investor protection has been greatly improved under ISA 2025. The ISA 2007 limited investor compensation from the Investor Protection Fund (IPF) to cases of bankruptcy, insolvency, or negligence by brokers.

The new Act expands coverage to compensate investors if a dealing member firm’s registration is revoked or canceled.

Further, it introduces stricter penalties for Ponzi scheme operators, mandating a minimum fine of N20 million or up to 10 years in prison. These measures will help deter fraudulent schemes and safeguard retail investors.

For the first time, Nigeria now has a dedicated legal framework for commodities trading. The ISA 2007 did not adequately regulate commodities exchanges and warehouse receipts, limiting the growth of agricultural and resource-based markets.

The ISA 2025 establishes a structured environment for commodities trading, promoting price discovery, encouraging investments in agricultural production, and providing better financing options for farmers and businesses.

Access to capital for state and local governments has also been improved. The ISA 2007 restricted sub-national entities from raising funds through the capital market, forcing them to rely heavily on federal allocations and traditional debt instruments.

The ISA 2025 allows states and local governments to issue securities for financing infrastructure, healthcare, and education projects, fostering economic development and reducing dependence on federal funding.

Market transparency has been significantly enhanced through the mandatory use of Legal Entity Identifiers (LEIs) for capital market transactions.

The ISA 2007 lacked such a requirement, making it more challenging to track securities transactions and detect fraudulent activities. The introduction of LEIs in the ISA 2025 improves market surveillance and ensures accountability among market participants.

The Investments and Securities Tribunal (IST) has also undergone key reforms to enhance its effectiveness. ISA 2007 had outdated provisions governing the tribunal’s composition and jurisdiction, leading to inefficiencies in handling capital market disputes.

ISA 2025 revises the structure and appointment process of the tribunal, ensuring a faster and more efficient resolution of investor grievances.