OVERVIEW
The Nigerian Investment and Securities Act 2025 (ISA 2025), enacted in March 2025, represents a watershed moment for Nigeria's financial regulatory landscape. A particularly noteworthy aspect of this Act is the formal recognition and inclusion of virtual and digital assets, or any other instrument which may be transferred by means of any electronic mode within the definition of “securities”1.
This landmark decision acknowledges the increasing prominence of digital assets in the global financial system and reflects a commitment to adapting Nigeria's regulatory framework to these technological advancements. This article will analyse the positive implications of this inclusion for the Nigerian securities sector, examining the newly established regulatory framework, the potential benefits for market participants and investors, the anticipated enhancement of investor confidence, and the alignment of this development with international best practices.
INTRODUCTION
The inclusion of digital assets in the new legislation is a response to the ever-evolving global securities landscape and a forward-thinking approach by the regulators to ensure the country's financial regulations remain relevant and competitive in an increasingly interconnected world. This is especially moving away from the Central Bank of Nigeria's directive to all banks restricting access to the trading of cryptocurrencies in the country, directing all regulated institutions to close the accounts of persons or entities involved in cryptocurrency transactions within their system.
The ISA 2025 explicitly defines "virtual/digital assets and investment contracts" as securities, providing a clear legal basis for their regulation2. This broad definition effectively brings cryptocurrencies and other digital representations of value under the regulatory authority of the SEC.
The SEC's prior stance, articulated in 2020, that virtual crypto assets are to be considered securities unless proven otherwise3, suggests that the ISA 2025 codifies an existing regulatory intent, providing a more robust statutory foundation for the SEC's oversight. Moreover, the SEC's existing "Rules on Digital Assets Issuance, Offering Platform, Exchange, and Custody”4 offer valuable insights into the likely treatment of various digital assets, such as Initial Coin Offering (ICO), Security Token Offering (STO), and crypto assets structured as investment instruments, under the new Act.
In addition, the inclusion of "investment contracts" within the definition of securities is particularly noteworthy. This globally recognized concept in securities regulation allows the SEC to regulate digital assets not just based on their technological characteristics but also their economic substance and the reasonable expectations of profit derived from the entrepreneurial or managerial efforts of others. This functional approach is essential for effectively regulating the diverse and rapidly evolving landscape of cryptocurrencies and other digital assets, ensuring that regulatory oversight is applied where economic activity and investor expectations align with traditional securities offerings.
The ISA 2025 establishes a comprehensive regulatory framework for the digital asset market by bringing Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs), and Digital Asset Exchanges under the regulatory purview of the SEC. These entities are now legally obligated to register with the SEC and obtain the necessary licenses to operate within Nigeria5. Operating as a digital asset service provider without the requisite SEC registration is a criminal offence with a term of imprisonment, a fine or both6.
The Act introduces a structured classification system for securities exchanges, distinguishing between Composite Exchanges, which can list all types of securities, and Non-Composite Exchanges, which specialize in specific asset classes7. The Non-Composite category includes Mono Securities Exchanges, specifically designed for platforms dealing with a single asset type, such as virtual assets (including cryptocurrencies) or digital tokens, and Alternative Trading Systems (ATS) for electronic platforms facilitating trading. This tiered system provides a clear and appropriate regulatory pathway for digital asset trading platforms to operate within the Nigerian financial market.
While the detailed registration requirements for digital asset platforms will be further specified by the SEC, they are expected to include corporate registration with the Corporate Affairs Commission, the submission of comprehensive documentation detailing the platform's membership rules, listing criteria for digital assets, and trading procedures, as well as thorough verification of the business integrity of the platform operators and key personnel8. Registered exchanges will also be subject to ongoing governance standards, compliance obligations, and regular regulatory oversight by the SEC, including the mandatory submission of quarterly reports outlining their surveillance and enforcement activities9.
Investor protection is a fundamental principle underpinning the ISA 2025, and several provisions are specifically designed to safeguard individuals and entities investing in digital assets. These measures include the requirement for all digital asset operators to comply with SEC guidelines on investor protection and market integrity. The expansion of the Investor Protection Fund (IPF) to cover losses resulting from the revocation of a dealing member firm's registration provides an additional layer of security for investors in the regulated digital asset market.
Furthermore, the enhancement of the SEC's powers regarding the investigation and enforcement, and the authority to access electronic communication data, will be very useful in combating illicit activities within the digital asset space.
BENEFITS OF INCLUSION OF DIGITAL ASSETS IN THE SECURITIES MARKET
- ATTRACTION OF NEW CLASS OF ASSETS AND INVESTORS
The inclusion of digital assets within the regulated securities market is expected to increase market liquidity by attracting investors and a new class of assets to the securities market, including those who were previously hesitant to engage with unregulated digital assets. This development would likely resonate with the younger, more technologically inclined demographic, which has shown a strong interest in cryptocurrencies and digital innovations over the years.
There is the potential for the digital asset market, under this new regulatory framework, to attract funds held abroad by young Nigerians and positively impact the value of the naira. By offering a regulated and potentially more trustworthy environment for digital asset investments within Nigeria. This could incentivize the repatriation of capital, thereby increasing demand for the local currency.
- SECURE TECHNOLOGICAL ADVANCEMENT
The integration of digital assets into the formal financial system is poised to foster technological innovation within the securities sector y encouraging the development and adoption of new financial products and services that leverage blockchain technology and other digital advancements. This can lead to a more dynamic, efficient, and competitive financial environment, ultimately benefiting both issuers and investors.
In addition, Fintech companies can operate in this space with a more secure and stable environment to conduct their business and pursue innovation, as they will now operate within a clearly defined legal framework. This regulatory clarity is expected to encourage further investment and growth within the Nigerian Fintech sector, potentially positioning Nigeria as a hub for digital financial innovation.
- PROMOTION OF ACCOUNTABILITY AND TRANSPARENCY
The mandatory registration of digital asset operators and exchanges with the SEC will introduce a much-needed layer of accountability and transparency, fostering greater trust among investors who will now have recourse to regulatory oversight and potential legal remedies in case of breaches or misconduct. By bringing these assets under the regulatory oversight of the SEC, the Act aims to curb the fraudulent activities that have been prevalent in this market, such as Ponzi schemes and other illicit investment schemes by imposing of strict penalties, including substantial fines and imprisonment, for those involved in such schemes in a bid to deter subsequent recurrence.
Furthermore, the Investor Protection Fund (IPF) has also been enhanced to cover financial losses incurred by investors due to the failure or misconduct of regulated entities dealing with digital assets, providing an additional safety net that can significantly boost investor confidence in participating in the digital asset market.
- ALIGNMENT WITH GLOBAL BEST PRACTICES
The ISA 2025's approach to digital assets reflects a commitment to aligning Nigeria with international best practices and standards for the regulation of this expanding asset class. This regulatory development mirrors the trend observed in many other jurisdictions that are adapting their securities laws to accommodate digital assets and virtual currencies, demonstrating Nigeria's intention to remain at the forefront of financial innovation.
A key aspect of this alignment is the objective to ensure that Nigeria's capital market regulations adhere to international best practices, thereby allowing the SEC to retain its "Signatory A" status under the International Organisation of Securities Commissions (IOSCO) and Enhanced Multilateral Memorandum of Understanding (EMMoU). Maintaining this status is crucial for enhancing Nigeria's attractiveness to international investors and facilitating cross-border regulatory cooperation and information sharing, which are essential in the increasingly globalized digital asset market.
CONCLUSION
Experts in the financial and legal sectors have expressed positive opinions regarding the inclusion of digital assets in the ISA 2025. The Director-General of the SEC has hailed the Act as a transformative step for the Nigerian capital market, empowering the commission to foster innovation, protect investors more effectively, and reposition Nigeria as a competitive destination for both local and foreign investments10.
The inclusion of digital assets in the Investment and Securities Act 2025 represents a significant and positive development for the Nigerian securities sector. This forward-thinking approach positions Nigeria to effectively engage with the rapidly evolving digital economy by providing a clear regulatory framework for digital assets. The Act's provisions are expected to foster innovation, attract investment, enhance investor protection, and ensure market integrity within the digital asset space. By aligning Nigeria's capital market regulations with international best practices, the ISA 2025 enhances the country's global competitiveness and attractiveness to both local and foreign investors. Ultimately, the ISA 2025 sets a strong foundation for the future growth and modernization of the Nigerian securities sector in the digital age, potentially positioning Nigeria as a key player in the African digital finance landscape.
However, financial experts such as Prof. Uwaleke—the former commissioner of Finance, Imo State, has opined that despite the significant strides made by the ISA 2025, several gaps and unresolved issues remain in terms of market regulation and investor protection11. He submitted that there are still potential loopholes that market participants could exploit, especially in areas where the law is broad or ambiguous. An example of such a loophole is the failure of the Act to adequately address cross-border security trading or regulatory cooperation with foreign jurisdictions. Offshore investment apps such as Trove, Risevest, and Bamboo, which offer Nigerians access to U.S and Chinese stock markets, may not fall under the SEC's jurisdiction if they have no local presence.
Footnotes
1. Section 357 (Interpretation Section) of the Investment and Securities Act, 2025.
2. What To Know as ISA 2025 Enhances Regulatory Powers Of SEC- https://businessday.ng/news/article/what-to-know-as-isa-2025-enhances-regulatory-powers-of-sec/#:~:text=*%20Expansion%20of%20the%20definition%20and,under%20the%20SEC's%20regulatory%20purview-Accessed on May 1st 2025.
3. SEC Nigeria Statement on Digital Assets and their Classification and Treatment Dated 11/9/2020 - Accessed on May 1st 2025.
4. Rules on Digital Assets Issuance,Offering Platform, Exchange and Custody - Issued on May 11th 2022- Revised by the Exposure of Amendment to Rules on Digital Assets Issuance, Offering Platform, Exchange and Custody-September 27th 2024, Effective June 30th 2025.
5. Section 26, Investment and Securities Act 2025.
6. Section 26 (2 & 3), Investment and Securities Act 2025.
7. Section 27, Investment and Securities Act 2025.
8. Section 28, Investment and Securities Act 2025.
9. Section 30(3) Investment and Securities Act 2025.
10. In Major Boost to Capital Market, Tinubu Signs Investment and Securities Bill 2025 - Reported on This Day March 30th 2025 - https://www.thisdaylive.com/index.php/2025/03/30/in-major-boost-to-capital-market-tinubu-signs-investments-and-securities-bill-2025/ Accessed on May 1st 2025.
11. ISA 2025: Game Changer for Nigerian Capital Market- Prof Uwaleke- By Sunday Etuka - Reported on The Fact Daily, April 28th 2025- https://thefact.ng/isa-2025-gamechanger-for-nigerian-capital-market-prof-uwaleke/ - Accessed on May 1st 2025
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