INTRODUCTION
The Investments and Securities Act, 2025 ("ISA 2025" or the "New Act") was signed into law in March 2025, repealing the Investments and Securities Act, 2007 ("ISA 2007 or the "Old Act"). This new legislation aims to strengthen existing regulations, protect investors, and open up new opportunities. It also codifies many of the existing rules and guidelines issued by the Securities and Exchange Commission ("SEC"). This article provides a broader overview of the key introductions in the ISA 2025. Below, we outline the major changes and their implications to guide you through this new legal regime for the capital market.
1. THE SEC GAINS BROADER AUTHORITY
The ISA 2025 allocates additional powers to the SEC as the apex regulatory authority for the Nigerian capital market. It reinforces the SEC's independence in carrying out its statutory functions. This expanded authority aligns Nigeria's capital market with global benchmarks, such as the International Organisation of Securities Commissions (IOSCO). Some notable introductions include:
Regulation of Virtual and Digital Assets, Digital Assets Exchanges, and Virtual Asset Service Providers In our earlier article, "How the ISA 2025 Reshapes Nigerian Virtual Asset Market," we highlighted the impact of the New Act on the trading and exchange of cryptocurrency and other digital assets in Nigeria.1 The ISA 2025 marks a pivotal development by extending the definition of securities to include virtual and digital assets.1 It also explicitly grants the SEC the power to register and regulate virtual and digital asset exchanges.2 This legislative clarity provides a clear statutory basis for the SEC's existing and future regulatory efforts in the digital asset space.
Notably, the SEC had already stated in September 2020 that it considered digital and virtual assets to be securities unless proven otherwise. This was followed by the issuance of detailed Rules on Issuance, Offering Platforms and Custody of Digital Assets in May 2022, despite a period of uncertainty caused by the Central Bank of Nigeria's February 2021 directive restricting banks from servicing crypto-related accounts. Although the CBN later eased these restrictions in December 2023, the ISA 2025 now removes ambiguity by legally recognising digital and virtual assets as securities and mandating registration for operators. Effectively, the ISA 2025 aligns Nigeria's regulatory framework with practices in other jurisdictions where capital market regulators oversee the virtual asset space.
Power to Appoint, Place on Probation or Remove Directors of Public Companies
Under ISA 2007,3 the SEC's power of intervention was limited to the management and control of failing or failed capital market operators. The New Act has now expanded the scope of its intervention to include public companies and other regulated entities that have failed or are failing, committed grave corporate governance violations, or acted in a manner detrimental to the interest of their investors and shareholders.4
Also, the New Act gives the SEC the power to appoint independent directors to the boards of public companies under the SEC's regulatory action; place directors of public companies on probation, or remove any person associated with misconduct or mismanagement of a public company or capital market operator. 5
Power to Obtain Phone and Internet Data
The SEC under the New Act has the power to request and obtain the records of persons who have or may have violated the provisions of the ISA 2025. The Act empowers the SEC to access data from internet providers, telephone service providers and other electronic communication providers in Nigeria. In its exercise of this power, the SEC can access subscribers' information, including personal data, payment details, and the content of communication regarding the violation of the Act or any securities law. 6
Other New Powers
1. The New Act empowers the SEC to compel a person to attend a court hearing to give testimony or statement in a particular proceeding. 7
2. The ISA 2025 gives the SEC powers to establish a National Confiscation Wallet and MultiParty Combination Wallet, 8 which is a wallet to be maintained by the SEC specifically for 8 storing confiscated digital assets. This is part of a broader framework to combat illicit crypto activities, such as money laundering or fraud. In the UK, the Economic Crime and Corporate Transparency Act (ECCTA) 2023, particularly Part 4 and Schedule 8, outlines processes for seizing crypto assets and transferring them to a law enforcement-controlled wallet for detention or forfeiture.
2. CATEGORISATION AND STRICTER OVERSIGHT FOR EXCHANGES
Categorisation of Exchanges
The ISA 2025 recognises the structured classification of exchanges into composite and non-composite exchanges.9 By its publication, Exposure of Amendments to the Rules on Digital Assets, proposed categorisation of exchanges along with guiding implementation rules. The New Act now incorporates these categorisations, which essentially define the type of securities that may be admitted for trading on a given platform.
Composite exchanges can support the trading of all types of securities, commodities or financial products. They are versatile, multi-asset platforms capable of handling a broad range of instruments, including stocks, bonds, derivatives and commodities. On the other hand, non-composite exchanges are limited in scope. They consist of mono securities exchanges, which are permitted to list and trade a specific class of security, or financial products or instruments, and alternative trading systems ("ATS"), which provide a platform for exchange between buyers and sellers, whether hosted via a physical location or the internet.
Currently, Nigeria has no officially designated non-composite exchange. However, some exchanges may fall under the scope of non-composite exchanges, such as the Lagos Commodities and Futures Exchanges (LCFE). The LCFE engages in single-asset classes and deals mainly with commodities and futures contracts. Platforms with ATS functionality may also be categorised as non-composite exchanges in the future.
Stricter Penalties for Infringement
The ISA 2025 updates penalties and fines for non-compliant exchanges to meet modern realities. Aside from ensuring exchanges stay compliant with the dictates of the Act, it also sanctions entities that operate or attempt to operate as exchanges without registering with the SEC. Imposable sanctions include halting the operations of unregistered exchanges and prosecuting any person who is deemed to have been in control of the company, including directors and promoters. Penalties may include a fine of up to N10 million or imprisonment of not less than five years or both. 10
Greater Compliance Responsibilities on Exchange Operators
Exchanges now face stricter and expanded responsibilities under the ISA 2025. Specifically, exchanges are required to keep accurate records, report any disciplinary actions taken against members, and comply with the SEC directives.11 While these provisions aim to promote market stability and investor confidence, they also impose greater compliance responsibilities on exchange operators.
3. PROTECTION FOR FMIs FROM STANDARD INSOLVENCY LAWS
Financial Market Infrastructures (FMIs)—systems like clearing houses and trade depositories that process and settle transactions—now have their own set of rules under Part V of the ISA 2025. FMI are the behind-the-scenes networks that keep trades moving smoothly, ensuring payments and securities change hands without hiccups. Apart from requiring all FMIs to register with the SEC, the ISA 2025 now protects their transactions (including various categories of market contracts, cleared client contracts, and market collateral) from standard insolvency laws.12 This ensures that even in the event of a participant's insolvency, the settlement process remains unaffected. This protection enhances market stability and boosts confidence among both issuers and investors by ensuring transaction security and uninterrupted FMI operations even in insolvency scenarios.
4. DEBT ISSUANCE BY GOVERNMENT AUTHORITIES
Regulation of Government Issued Project-Bonds and Non-Interest Financial Instruments
The ISA 2025 introduces new provisions for governmental authorities/bodies (Federal, State, Local Government, or approved third parties) to issue debt securities. By the New Act, the issuance of 3 general obligation or project-tied debt securities by governmental bodies are now being regulated. 13 Project-tied debt securities are debt instruments issued to finance a specific project, where repayment is typically linked to the cash flows or revenues generated by that project. This is a novel introduction of the Act and indicates that such debts may be serviced using revenue generated from a project, a specific asset or assets, or a guarantee from the different bodies specified under that heading. Also, the designated governmental authorities may now issue non-interest financial instruments (such as sukuk, Islamic mutual funds and ETFs), subject to the SEC's approval.14
Constraints on Debt Issuance and Obligations by Governmental Authorities
The New Act outlines these conditions to ensure fiscal responsibility in the issuance of general obligations debt securities, which in this context are bonds backed by the credit of the issuing body:
a. A governmental body can issue general obligation debt securities only if its Internally Generated Revenue (IGR) constitutes at least 60% of its consolidated revenue over the preceding three years. Unlike the ISA 2007, which sets the limit at 50% of the previous year revenue, ISA 2025 increased this threshold to 60% to ensure the issuer has a stable, self-generated revenue base for servicing the debt securities.
b. The total annual debt service obligations, including the proposed new issuance must not exceed 40% of the actual revenue from the consolidated revenue fund or other statutory fund in the preceding 12 months. For instance, if a state's actual revenue in the previous year was N100 billion, its annual debt payments (principal and interest) on all debts, including the new issuance, cannot exceed N40 billion.
c. Additionally, the SEC may consider other debt sustainability ratios, factoring in the issuer's revenue variability and long-term obligations.
Penalty for Diversion and Mismanagement of Proceeds of Debt Issuance
While the Old Act empowered government authorities to raise debts, it did not introduce sanctions to curb the diversion, misuse or mismanagement of the capital raised. The New Act addresses this gap by penalising the diversion or mismanagement of raised debt by officers, custodians, or any other responsible parties.
It penalises misuse and requires that the officer or body restitutes the mismanaged fund back to the issuer. The Act also imposes a penalty equal to 500% of the misused funds, payable to the SEC. Additionally, the officers or directors of the body could face up to 15 years in prison. 15
Enforcement of Penalty
The Act gives the SEC the authority to recover as a civil debt an administrative penalty and unpaid restitution from defaulters for and on behalf of the aggrieved party. 16
5. COMMODITIES AND WAREHOUSE RECEIPTS ARE REGULATED
The ISA 2025 introduces a dedicated section on the regulation of Commodities Exchanges and Warehouse Receipts, marking a significant step toward building a formal regulatory framework for Nigeria's commodities market.17 This is a critical development, especially for sectors like agriculture and mining, which have strong potential to drive economic growth. The new provisions align with the SEC's Guidelines on Commodities Exchange and aim to support the creation of well-regulated commodities exchanges that can improve price discovery, reduce market risks, and attract investment into the sector.
In addition, the recognition of warehouse receipts aligns with SEC's Rule on Warehousing and Collateral Management issued in 2021 which recognises warehouse receipts as a document of title issued as evidence of deposited commodities at a particular warehouse, and the right of the depositor to confer a security interest in the stored commodity in favour of a third party. By this, commodity producers, such as farmers, may use these warehouse receipts as collateral to access financing, thereby improving their access to credit.
6. INCREASED TRANSPARENCY
Prohibition of Cash Transactions
Unlike the ISA 2007, which permitted cash transactions within the SEC-set limits, the New Act 8 completely prohibits them.18 The prohibition of cash transactions in the capital market will no doubt aid AML/CFT efforts and promote easier tracking of capital flow in the market.
Legal Entity Identifiers (LEIs)
To enhance transparency and traceability, the New Act introduces a Legal Entity Identifier (LEI). 19 The LEI is a unique 20-character alphanumeric code designed to provide a standardised global system for identifying entities involved directly or indirectly in securities transactions. It is administered by the Global Legal Entity Identifier Foundation (GLEIF) and issued by the Local Operating Units. All participants in securities transactions are now required to obtain the LEI from an authorised issuer, which would be disclosed in every securities transaction. In Nigeria, the Central Securities Clearing System has been endorsed by the GLEIF as the official Local Operating Unit for the issuance of LEI. This introduction is significant as it enhances financial data accuracy, improves risk management, and reduces systemic risks.
Stricter Punishment on Unauthorised Sale or Transfer of Securities
The New Act imposes a fine of N50 million on any regulated entity which sells, transfers or disposes of a client's securities without the client's authority. It goes further to sanction entities that withhold, refuse or fail to remit proceeds of the sale of the client's securities.20 In addition to the fine, the entity will be required to restitute the client, and could have its licence suspended or revoked. These measures aim to build trust, and they demand operational adjustments from market players.
Tougher Stance on Fraud
Under the ISA 2025, illegal investment schemes such as Ponzi schemes face significantly harsher penalties. Offenders may be fined up to N20 million or sentenced to up to 10 years in prison. 21 In addition, the SEC has the power to seize assets involved in such schemes. 22 This contrasts sharply with the ISA 2007. While the 2007 Act prohibited unauthorised invitations to the public to acquire securities or deposit money, the monetary penalty specified for such a breach was considerably lower: N500,000 for a body corporate and N100,000 for an individual. 23 Furthermore, the explicit powers for asset seizure and forfeiture available to the SEC under ISA 2025 were not as clearly defined or potent in the 2007 Act.
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Footnotes
1. Section 357 of the ISA 2025 [2] Section 3(3)(b) of the ISA 2025
2. Section 3(3)(b) of the ISA 2025
3. Section 13(v) of the ISA 2007
4. Section 3(4)a, of the ISA 2025
5. Setion 3(4)b, c, d of the ISA 2025
6. Section 3(4)(j) of the ISA 2025
7. Section 3(4)t of the ISA 2025
8. Section 3(4)n of the ISA 2025
9. Section 27
10. Section 26
11. Section 31-35
12. Section 42 and 45
13. Section 272
14. Section 307
15. See generally SEction 307
16. Section 348
17. Part XV, Section 224-267
18. Section 121
19. Section 123
20. Section 131
21. Section 196(3)
22. Section 196(1)
23. Section 67(2) of the ISA, 2007
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
