1.0. HISTORICAL AND LEGISLATIVE BACKGROUND OF THE INVESTMENT AND SECURITIES ACT IN NIGERIA.
The Investment and Securities Act (ISA) is the principal legal framework governing securities regulation and capital market activities in Nigeria. It was first enacted in 1999, and subsequently repealed and replaced by the ISA2007. The enactment of the 2007 Act was part of broader reforms aimed at strengthening regulatory oversight, enhancing investor protection, and aligning Nigeria’s financial market operations with international best practices.
The 2007 Act formally established the Securities and Exchange Commission (SEC) as the apex regulatory body for Nigeria’s capital market. It also introduced a wide range of provisions to regulate public offers, securities exchanges, investment intermediaries, collective investment schemes, and takeovers. Furthermore, the Investment and Securities Tribunal (IST) was established under the Act to resolve capital market disputes efficiently, and to reduce the burden on regular courts.
1.1. The Need for Reform: Path to the ISA 2025
Despite the strides achieved under the ISA 2007 regime, the rapid evolution of global financial markets, the rise of digital financial assets, and emerging technologies such as blockchain have exposed gaps in the existing legal framework. These developments prompted Nigerian lawmakers and stakeholders to initiate a comprehensive review of the ISA 2007.
The Investment and Securities Bill 2024 was introduced in the National Assembly as part of this reform initiative. Its goal was to modernize the regulatory environment to accommodate innovations in fintech, crypto assets, derivatives, and other digital financial instruments. This bill has been promulgated as the Investment and
Securities Act 2025, and accommodates these necessary innovations.
Summarily, the Investment and Securities Act has evolved from a foundational regulatory law in 1999, to a more sophisticated framework in 2007, and now, toward a technology-forward, investor-protective instrument in 2025. This evolution underscores Nigeria’s commitment to fostering a dynamic, inclusive, and globally competitive capital market.
2.0. INNOVATIONS OF THE INVESTMENT AND SECURITIES ACT
2.1. The ISA 2025 Empowers the SEC to Better Defend Investors’ Interests
Under sections 1, 2, and 3 of the Investment and Securities Act (ISA) 2025, the SEC has been endowed with enhanced powers to protect investors and guarantee the integrity of the capital market. Beyond the scope of the foregoing sections, the following are some additional powers the SEC is vested with to enhance investor protection:
2.1.1. Enhanced Investigative Powers
The SEC is granted authority to obtain user data from telecommunications and electronic communication companies in Nigeria. This access facilitates the Commission’s investigation and enforcement processes.
2.1.2. Systemic Risk Management
The Act incorporates provisions for managing systemic risks within the capital market, mandating the SEC to establish mechanisms for monitoring and mitigating such risks.
2.1.3. Strengthening of the Investor Protection Fund (IPF)
The Investor Protection Fund has been significantly enhanced to provide compensation not only in cases of insolvency or broker negligence but also when a broker’s registration is revoked or cancelled for regulatory breaches.
2.2. The New Law Explicitly Criminalizes Fraudulent Schemes
The Investment and Securities Act (ISA) 2025 of Nigeria also introduces stringent measures to combat fraudulent investment schemes, particularly Ponzi and pyramid schemes. This legislative overhaul empowers the SEC with enhanced authority to prosecute and penalize operators of such schemes, aiming to protect investors, and restore confidence in the financial markets. Section 196(1) explicitly prohibits the operation and promotion of Ponzi, pyramid, and other unauthorized investment schemes. Under Section 196 (3)
of the new Act, individuals found guilty of operating or promoting prohibited schemes could face: a minimum of 10 years imprisonment, a fine of at least 20 million, or both penalties concurrently. These stringent sanctions serve as a strong deterrent against financial fraud.
Beyond fines and imprisonment, the ISA2025introduces provisions for disgorgement, mandating the recovery of all illicit profits obtained through fraudulent activities. This ensures that victims can receive restitution, and offenders are stripped of unlawfully acquired gains.
Furthermore, the Act grants the SEC expanded powers to investigate fraudulent activities, including the authority to access and analyze communications such as telephone records under section 194. This enhancement bolsters the SEC’s capacity to gather evidence and prosecute offenders effectively.
2.3. Digital Assets like Crypto are now Regulated
One of the major highlights of the Investment and Securities Act, 2025 is the formal regulation of digital assets, including cryptocurrencies. For the first time, digital asset operators will be registered and supervised by the SEC . This development signals a shift from years of governmental inaction toward embracing the crypto ecosystem. The Act gives the SEC authority to regulate digital assets, virtual asset service providers (VASPs), and tokenized securities, filling a long-standing regulatory gap and bringing clarity to a previously murky sector.
Digital assets such as Bitcoin, Ethereum, and other blockchain- based cryptocurrencies are digitally created and stored, identifiable, and hold or provide value. As the global financial landscape rapidly evolves toward digital finance, Nigeria has taken a vital step in keeping pace. However, it is important for digital asset operators to know that the benefit they obtain by way of being acknowledged as participants in the securities sphere, comes with immense responsibilities. Operators must comply with SEC regulations, including obtaining proper licenses as non-compliance will attract penalties.
Undoubtedly, this regulatory framework positions Nigeria as a leader in blockchain adoption, enabling it to tap into emerging capital markets, stimulate economic growth, and create wealth.
2.4. Introduction of Legal Entity Identifier (LEI)
To enhance transparency in securities transactions, the Act introduces the Legal Entity Identifier (LEI) system. The act makes ample provision for a legal entity identifier for any entity that is directly or indirectly involved in securities transactions, to monitor and whittle down systemic risks, arising from parties and counterparties activities. All participants in securities transactions shall obtain the legal entity identifier from an authorized issuer. This requirement helps monitor and reduce systemic risks by tracking parties and counterparties in financial transactions. By mandating disclosure of LEIs in all securities transactions, the Act improves data accuracy and strengthens risk management mechanisms.
2.5. Modernize Nigeria’s Investment Landscape by making it more Structured, Secure, and Aligned with Global Best Practices
The Investment and Securities Act, 2025 brings Nigeria’s investment environment in line with global best practices through several forward-looking provisions such as the legalization of cryptocurrency which aligns Nigeria’s investment space with 21st- century financial technologies.
2.6. Exclusive Insolvency Provisions for Financial Market Infrastructures (FMIs)
Part V(C) of the Investment and Securities Act 2025 broadly excludes general insolvency rules from applying to specific FMI- related transactions and mechanisms. Market contracts, collateral transfers, settlement rules, and default proceedings related to FMIs are ring-fenced, therefore, are not subject to general insolvency proceedings. The default rules of FMIs take precedence, and actions taken in accordance with those rules cannot be challenged under extant insolvency laws. Essentially, no part of the listed FMI-
related transactions is to be considered voidable, unenforceable, or subject to challenge under the extant bankruptcy or insolvency laws.
By shielding Financial Market Infrastructures (FMIs) like clearing houses and exchanges from the disruptive effects of insolvency proceedings, these provisions prevent a domino effect of defaults. This helps maintain investor and institutional confidence, even when a market participant fails.
2.7. Categorization of Exchanges and Incorporation of Regulations concerning Financial Market Infrastructures
The Act explicitly classifies securities exchanges into two: Composite and Non-composite. As provided in the Act, a composite exchange handles all types of securities/products, while a non-composite exchange is limited in scope, focusing on a specific class e.g., an alternative trading system which collates orders from buyers and sellers in a physical or virtual environment.
The adoption of emerging trading platforms, such as Alternative Trading Systems (ATS), highlights Nigeria’s ability to adapt to modern financial developments. This provision is crucial because it enables composite exchanges to serve as one-stop platforms for diverse financial instruments, while non-composite exchanges can specialize in particular asset classes (e.g., commodities, bonds, or digital assets), encouraging focused expertise. Following the classification, the Act opens the door for tech-driven platforms, digital exchanges, and niche marketplaces to operate legally. Without a doubt, the classification system is in line with international regulatory frameworks, making the local market more attractive to foreign investors and supporting cross-border recognition.
2.8. Widening the Interpretation and Coverage of Securities
The Act formally recognizes digital assets and investment contracts as part of the legal definition of securities. This inclusion brings virtual asset-related activities under SEC regulation, meaning that Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs), and Digital Asset Exchanges must now register and comply with SEC rules. The implication of this extension is that the same regulatory framework that applies to traditional securities now applies to crypto-related assets and platforms. On paper, this innovation is commendable, because it seems like investors are protected under the same laws that govern traditional financial products i.e., disclosures, anti-fraud rules, and oversight of intermediaries. However, it remains difficult to see how the SEC intends to regulate a decentralized and largely anonymous market like the crypto space.
2.9. Addressing Systemic Risk
The Act empowers the SEC to proactively manage systemic risk in the capital market by issuing binding directives to market participants to take any necessary measures to monitor, manage, or mitigate systemic risk, entering into formal arrangements with other regulators (like the Central Bank of Nigeria, National Insurance Commission, etc.) to share information, coordinate responses, and promote financial stability, demanding information or documents from any capital market participant deemed necessary for systemic risk monitoring or upon request from another financial sector regulator, etc. In recognition of the fact that systemic risk can trigger widespread market failures, these provisions equip the SEC to act quickly and decisively to prevent contagion. The relevant provisions boost market confidence as investors and stakeholders are more likely to trust a market where the regulator has clear tools to intervene in crisis scenarios, reducing panic and volatility.
2.10. Issuance of Securities by Sub-Nationals and their Agencies
The Investment and Securities Act (ISA) 2025 introduces a transformative shift in Nigeria’s fiscal federalism by granting state and local governments (collectively referred to as sub-nationals) and their agencies greater access to the capital markets, for the purpose of raising funds through the issuance of debt securities in the form of bonds, promissory notes, non-interest financial instruments and such other instruments that may be approved by the SEC. Sections 259 and 260 of the Act lay out the conditions, types of instruments, and safeguards governing such issuances. These provisions are aimed at financial autonomy, infrastructure development, and transparency at the state and local levels of government.
The strategic implications of these sections for governance and
economic development are to:
a.) Reduce overdependence on federal allocation, allowing them to independently raise capital based on the strength of their credit profile and economic plans;
b.) Promote massive infrastructure growth, urban development and in the short run, job creation, without waiting for federal grants or accumulating short-term bank debt;
c.) Encourage transparency, accountability, and discipline in how public funds are utilized.
2.11. Expansion of the Category of Issuers to the Public
Another significant reform introduced by the Investment and Securities Act (ISA) 2025 is the broadening of entities permitted to raise funds from the public through the issuance of securities or public investment offering. Section 95(1) of the ISA 2025 expands the scope of entities allowed to make public invitations for securities offerings or deposit-taking activities, subject to regulation and approval of SEC. The eligible entities include: public companies, statutory bodies i.e., government-established banks, entities licensed by the Central Bank of Nigeria, Collective Investment Schemes (CIS) and Government Agencies, entities in economic free trade zones and other entities approved by SEC.
This is in contrast to the repealed ISA 2007 which restricted the entities allowed to raise funds from the public through the issuance of securities to only public companies, statutory bodies, and banks established under an Act of the National Assembly.
Section 95(1) of the Act introduces flexibility for innovative business models such as startups, FinTechs, agri-tech investment platforms, and other alternative investment vehicles, provided they operate within the regulatory framework prescribed by the SEC. The idea is to encourage capital formation from a broader base while balancing market expansion with regulatory control and ensuring that both investors and the economy benefit from greater financial inclusion, innovation, and economic activity.
2.12. Legal Framework for Commodities Exchanges
For the first time, the legislature and relevant stakeholders dedicate an entire Part of the Act – Part XVI, to the regulation of commodities exchanges and warehouse receipts, laying out rules, standards, and institutional responsibilities to govern the buying, selling, trading, and storage of commodities. This marks a critical step in the ongoing evolution and modernization of Nigeria’s agricultural and extractive sectors, enabling them to become more commercially viable, structured, and investor-friendly. Commodities exchanges and warehouses within the ambit of the Act must now be registered and regulated by SEC.
The ISA 2025 lays a solid legal foundation for the commodities market ecosystem, moving it from an informal, under-regulated system to a formalized, technology-driven and investor-attractive marketplace. With proper implementation, these provisions will help unlock billions of naira in value across agriculture, solid minerals, and energy creating jobs, fostering trade and supporting Nigeria’s broader economic diversification goals, provided measures are put in place to ensure smooth running of the commodities exchanges and warehouses.
3.0. CONCLUSION
The ISA2025is a landmark piece of legislation that ushers Nigeria’s capital market into the 21st century, in line with international standards, particularly those established by the International Organization of Securities Commissions (IOSCO). With its wide- ranging reforms, from digital asset recognition to stronger investor protection, it is designed to promote market integrity and transparency, clampdown on fraudulent schemes, deepen participation, and attract both local and international investments.
As implementation begins, relevant stakeholders, investors, startups, regulators, capital market operators, legal and financial advisers must familiarize themselves with the new provisions to harness the full benefits of this transformative law.
