INTRODUCTION
The Federal Legislature took its time; the reform of the Investment and Securities Act (ISA) 2007 by the enactment of the Investment and Securities Act 2025 (“the Act” or “ISA 2025”), was a long time coming. The previous law had become outdated, especially with the rise of new technologies like fintech, digital assets, and online trading, which were not properly covered under the old framework. The new Act provides clearer rules for virtual assets, boosts investor protection, expands the powers of the Securities and Exchange Commission (SEC), and strengthens enforcement measures. This landmark legislation was spearheaded by the SEC to revamp and modernize Nigeria’s capital market. The Act establishes a stronger legal and regulatory system to close existing gaps, encourage financial innovation, and attract both local and international investment by improving market confidence and oversight.
This article explores the essential provisions of the Act and their impact on investors and organisations.
KEY REFORMS AND REGULATORY HIGHLIGHTS OF THE ISA 2025
Expanded Regulatory Function of the SEC
The ISA 2025 reaffirms the independence of the Securities and Exchange Commission (“SEC” or “the Commission”), ensuring its capacity to perform its regulatory duties in alignment with the principles of the International Organization of Securities Commissions (IOSCO). These principles stipulate that securities regulators must have adequate authority, resources, and capabilities to effectively discharge their responsibilities.
Key enhancements to SEC’s regulatory functions are:
- Extension of the list of entities regulated by the Commission to include virtual and digital asset exchanges, virtual asset service providers, digital asset operators and credit enhancement facility providers;
- The registration and regulation of online forex trading activities, platforms and intermediaries;
- The extension of powers of the Commission to include the power to penalize sponsors of prohibited schemes such as Ponzi schemes and pyramid schemes; and
- The registration and regulation of collateral management companies, warehouse operators, warehouses and electronic warehouse receipts, ensuring efficient trading of commodities on commodities exchange.
The Act further improves the SEC’s ability to investigate potential violations of securities laws. Key provisions are:
- the ability to audit public companies and other regulated entities;
- the power to obtain subscriber data from telecommunication; and internet service providers located within Nigeria in connection with investigations related to violations of securities laws. This does not inherently conflict with the Nigeria Data Protection Act (NDPA) 2023 as it is lawful for the personal data of a data subject to be processed if it is necessary for compliance with a legal obligation to which the data controller or processor is subject to or necessary for the performance of a task carried out in the public interest or in the exercise of official authority by virtue of Sections 25 (1) (b) (ii) and (v) of the NDPA 2023.
Mandating Legal Entity Identifiers (LEIs) for Enhanced Market Transparency
The ISA 2025 introduces a pivotal regulatory reform by mandating the use of Legal Entity Identifiers (LEIs) for all participants engaged in capital market transactions. A Legal Entity Identifier (LEI) is a code that is unique to a legal entity such as a Limited Company, Fund or trust or any organization revealing an entity’s ownership structure. This requirement marks a significant step toward strengthening financial oversight, ensuring that every entity involved in securities trading can be uniquely identified. The introduction of compulsory LEIs aligns Nigeria’s capital market with international best practices, fostering greater accountability and reducing the risk of fraudulent transactions.
Regulatory Oversight of Mergers and Corporate Restructuring for Public Companies
The Act establishes a stringent regulatory framework for public companies engaging in corporate restructuring and financial transactions. Under its provisions, no public company may execute a scheme, transaction, or arrangement nor issue securities related to corporate actions and restructuring without obtaining prior approval from the Securities and Exchange Commission (SEC).
This statutory requirement reinforces the SEC’s authority in overseeing merger control within Nigeria’s capital markets, ensuring that corporate restructurings align with regulatory standards and market stability. Additionally, this provision complements the Federal Competition and Consumer Protection Act of 2018, further solidifying the SEC’s role in maintaining transparency, investor protection, and fair competition in corporate transactions.
Classification of Exchanges and Integration of Financial Market Infrastructure Provisions
The ISA 2025 establishes a structured classification of Securities Exchanges into Composite and Non-Composite categories. This classification helps organize and streamline how securities (like shares, bonds, or other financial products) are traded in Nigeria. It also helps people choose the right platform for the type of investment they’re interested in and ensures that each exchange is better supervised and specialized.
- Composite Exchanges serve as comprehensive trading platforms where a diverse range of securities and financial products can be listed and traded.
- Non-Composite Exchanges are specialized, catering exclusively to a specific type of security or financial product.
Furthermore, the Act has comprehensive provisions on Financial Market Infrastructures, strengthening the regulatory framework to promote greater market efficiency, resilience, and investor confidence. In securities exchanges, Financial Market Infrastructures (FMIs) are the systems and services that help the financial market run smoothly. They make sure that when people buy, sell, or transfer money or investments, everything happens safely and efficiently.
Under the ISA 2025, SEC is empowered to:
- Withdraw or revoke the registration of Financial Market Infrastructures (FMIs) on public interest and protection of investors.
- Shutdown and seal up premises of an unregistered FMI and prosecute each director, promoter or person in control of the FMI.
Recognition of Virtual Assets as Securities:
The Act explicitly recognises virtual/digital assets such as Bitcoin, Litecoin, Ethereum, and Dogecoin, as well as investment contracts, including stock purchase agreement, convertible debt agreement, and shareholder agreement, as securities. Also, it brings Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs) and Digital Asset Exchanges under the regulatory purview of the SEC.
This means businesses dealing in digital assets must register with the SEC and comply with its guidelines, a crucial step in curbing fraudulent activities in the digital space while fostering trust and innovation in blockchain technologies.
Applicability of Insolvency Laws in Capital Market Transactions
The ISA 2025, in Sections 45(1) and 46, sets out rules that protect certain market contracts or transactions facilitated through Financial Market Infrastructures, like buying or selling shares or bonds, from being affected by general bankruptcy laws. This helps keep the financial market stable, even if one of the parties involved is facing financial trouble. The law makes it clear that the ISA’s rules take priority over other insolvency laws, whether in Nigeria or abroad especially when a listed company on a Nigerian exchange or market platform is involved. This means that important market deals can continue without being stopped or cancelled just because one party is going through insolvency.
However, the Act also sets some important limits to this protection. For example, if a participant carries out a transaction after a court has ordered the company to be wound up or after the company has agreed to wind itself up because of debts, the special protection no longer applies. In such cases, normal insolvency rules will take effect.
Ensuring Whistleblower Safety
The Act establishes robust protection for whistleblowers who disclose information to the SEC. Under Section 139(6), employers are strictly prohibited from retaliating against employees who seek guidance or report potential violations to regulatory authorities. Retaliatory actions such as termination, threats of termination, demotion, suspension, disciplinary measures, or workplace penalties are expressly forbidden.
Furthermore, Section 139(8) declares any contractual provisions that restrict an employee’s ability to report misconduct to regulators or law enforcement as legally unenforceable. If an employer retaliates against a whistleblower, the whistleblower has several options. They can file a complaint for arbitration, report the issue to the SEC, or take the matter to court. If the court rules in favour of the whistleblower, it can order the employer to either reinstate the employee or pay the employee double the amount they would have earned in salary, bonuses, benefits, and allowances from the time of the retaliation until the court’s decision.
Development of a Derivatives Framework
The ISA 2025 gives the Securities and Exchange Commission (SEC) the clear authority to regulate the trading of derivatives in Nigeria. Derivatives are financial contracts whose value depends on the price or performance of something else like a currency, interest rate, stock, commodity, or market index. This framework is important because it allows investors to better manage risks, especially those related to foreign exchange, interest rate changes, and commodity price movements.
The Act also provides a broad definition of derivatives. It includes any financial instrument or contract that creates rights and obligations based on the value of one or more underlying assets or factors. These could be anything from assets and securities to economic indicators or even events like defaults. The SEC can also, through its rules, classify other instruments as derivatives.
Mergers and Takeovers
Under the ISA 2025, the Securities and Exchange Commission (SEC) can only regulate mergers involving public companies, in line with the Federal Competition and Consumer Protection Act, which gives the FCCPC authority over general merger regulation. The Act states that public companies must get SEC approval before carrying out any deal, transaction, or arrangement involving the issuance or offer of securities. The merger provisions under the Act reflect the current position as contained in the Commission’s rules and regulations.
Repositioning of Investment and Securities Tribunal (IST)
The Act enhances the capacity of the Investments and Securities Tribunal (“IST”), the specialized court for capital market disputes, by promoting expedited resolution of matters and stronger protection of investor rights. Key provisions relate to the Tribunal’s composition, increasing its membership from 10 to 12, with appointments now made by the President of the Federal Republic of Nigeria on the recommendations of Minister of finance, as was the case under the repealed Act. It is worthy to note that the IST may hear the report of a whistleblower when the SEC fails to act within 60 days.
The Act further improves how the Chief Registrar of the Tribunal is selected and expands the Tribunal’s authority. It clearly states that the IST has both original and appellate jurisdiction. This means the Tribunal can handle cases directly when they involve actions by the SEC or when the SEC fails to respond within a set time. It can also review and decide on appeals involving a wide range of capital market disputes, including those between regulators, market operators, investors, and public companies, as well as cases related to mergers, takeovers, and the management of investment schemes.
Treatment of Unclaimed Dividends of Public Companies
The ISA 2025 reaffirms that unclaimed dividends must be remitted to an Unclaimed Dividend Trust Fund (managed under SEC supervision). An unclaimed dividend is a portion of a company’s profits which ought to be disbursed to shareholders but remain uncollected by those shareholders. It is against the law for anyone to deal with unclaimed dividends in a way that goes against what is prescribed.
The penalty for contravening the law on how to treat unclaimed dividends will attract a direct fine of not less than N10,000,000.00 (ten million Naira) plus N50,000.00 (fifty thousand Naira) for each day the violation continues (instead of going to court) or a prosecution leading to the payment of not less than N10,000,000.00 (ten million Naira) or five years imprisonment or both.
CONCLUSION
The Investment and Securities Act 2025 marks a transformative shift in Nigeria’s capital market, enhancing regulatory oversight, fostering financial innovation, and reinforcing investor protection. By recognizing digital assets, enforcing stricter market transparency, and implementing robust legal measures against fraudulent schemes, the Act strengthens the country’s investment ecosystem. These reforms not only align Nigeria with global best practices but also create a more secure and dynamic investment environment especially for investors. As the nation embraces this new legal framework, stakeholders must adapt to its provisions to maximize opportunities while ensuring compliance.
