EIGHT INNOVATIONS IN THE NEW INVESTMENT AND SECURITIES ACT (ISA) 2025 AND WHAT THEY MEAN FOR CAPITAL MARKET OPERATIONS IN NIGERIA

Introduction

The enactment of the Investments and Securities Act (ISA or the Act) 2025 introduces significant reforms aimed at modernizing Nigeria’s capital market framework. This legislation repeals the previous Investments and Securities Act of 2007, aligning the country’s securities laws with contemporary global standards. The key innovations introduced by the ISA 2025 and what it means for capital market operations in Nigeria include:​

1. Enhanced Regulatory Oversight and Investor Protection

The ISA 2025 strengthens the Securities and Exchange Commission’s (SEC) authority, empowering it to regulate the market effectively to ensure capital formation, protect investors, maintain fair and transparent market practices, and mitigate systemic risks. The Act also empowers the SEC to make and enforce rules, conduct inspections, and investigations, and take enforcement actions. Notably, Section 196 ISA 2025, criminalizes prohibited schemes (Ponzi or pyramid structures) as defined under Section 357. The Act imposes stringent sanctions on operators of prohibited schemes (Ponzi or pyramid structures) and other illegal investment activities, increasing monetary penalties to a minimum of NGN 20 million and prison terms of up to 10 years, or both.[1]

Furthermore, Section 1(4) (c) ISA 2025 provides the SEC with the authority to collaborate internationally. The ISA 2025 positions the SEC to meet the eligibility requirements for becoming a signatory to the International Organization of Securities Commissions (IOSCO) Enhanced Multilateral Memorandum of Understanding (EMMoU). This international framework empowers the SEC to request enhanced cross-border assistance in investigating misconduct and fraud, significantly boosting its ability to hold bad actors accountable. Signatory status not only facilitates stronger enforcement of securities laws but also elevates Nigeria’s standing in the global financial community by aligning with international regulatory standards.[2]

The enhanced regulatory oversight and stronger investor protection measures introduced by the Act will promote market integrity, thereby boosting investor confidence  in the Nigerian capital market, making it more attractive to both domestic and international investors.

2. Recognition and Regulation of Virtual Assets

In a significant shift, the ISA 2025 expands the definition of securities to include virtual assets, thereby recognizing digital assets such as cryptocurrencies as securities. Section 357 ISA 2025 redefines “securities” to include virtual assets such as cryptocurrencies, tokens, and other digital representations of value. This change marks a formal entry of the digital asset ecosystem into Nigeria’s regulatory fold. This inclusion brings Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs), and Digital Asset Exchanges under the regulatory purview of the SEC, fostering innovation while ensuring investor protection in the burgeoning digital asset space. [3]

The previous Act (Investment and Securities Act (ISA) 2007) did not explicitly regulate digital assets, creating a legal gap that was partially addressed by the SEC’s 2020[4] classification of crypto assets, utility tokens, security tokens, and digital asset derivatives under existing securities laws. However, the new ISA 2025 formally recognizes digital assets as securities, bringing Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs), and Digital Asset Exchanges under SEC’s regulatory oversight, aligning Nigeria’s capital market with global standards. Sections 3(3), detail the regulatory oversight over Virtual Asset Service Providers (VASPs), Digital Asset Offering Platforms (DAOPs), and Digital Asset Exchanges. These provisions mandate registration with the SEC, implementation of anti-money laundering protocols, and adherence to investor protection measures. This shift imposes mandatory compliance obligations on capital market operators, requiring them to register with the SEC, adhere to stricter oversight, and implement transparency measures to protect investors. While these regulations may increase compliance costs, they also provide a clear legal framework that enhances market confidence and unlocks new investment opportunities in Nigeria’s digital asset space.

For the capital market operations in Nigeria, by recognizing and regulating virtual assets, the Act enables Nigeria’s capital market to embrace technological advancements. This legal framework would attract fintech investments and fosters a more dynamic, innovative financial ecosystem, ensuring the market remains competitive on a global scale.

3. Strengthening the Commodities Market

The Act introduces a comprehensive legal framework for the regulation of Commodities Exchange and Warehouse Receipts (Sections 224-227 of the Act) Specifically, Section 228,232 and 233 1SA, 2025 provides for the licensing, regulation, oversight function and issuing of directives to a license holder and Commodities Exchange and Section 240 1SA, 2025 authorizes the SEC to register Warehouse Receipts, allowing these instruments to serve as tradable financial assets. These provisions are designed to develop Nigeria’s commodities ecosystem by facilitating the trading of warehouse receipts and commodities contracts, thereby enhancing market efficiency and transparency.[5]

This introduction of a dedicated legal and regulatory framework for Commodities Exchanges and Warehouse Receipts, is a major step toward formalizing and expanding Nigeria’s commodities ecosystem. By legally recognizing and regulating these instruments and institutions, the Act seeks to create a more structured and efficient commodities trading environment.

The inclusion of Warehouse Receipts as tradable instruments means that farmers, producers, and traders can convert stored agricultural or mineral commodities into financial assets. This enhances liquidity, enables access to financing, and supports price discovery mechanisms. In parallel, regulated Commodities Exchanges provide a centralized and transparent platform for trading, which reduces counter-party risks and supports more accurate valuation of goods.

This reform will potentially:

• diversify investment instruments and opportunities, particularly in the non-oil sector;
• encourage institutional participation in commodities trading;
• enhance the integration of agricultural and industrial value chains into formal financial markets; and
• align the Nigerian market with global trends in structured commodities markets and supports broader economic development goals.

By bolstering the regulatory infrastructure of the commodities market, ISA 2025 positions Nigeria to become a regional hub for commodities trading, attracting local and international investors alike.

4. Systemic Risk Management

The ISA 2025 includes provisions that enhance the SEC’s ability to monitor and mitigate systemic risks within the capital markets. Under Section 82 – 84 ISA 2025, the SEC is explicitly empowered to monitor systemic risk and suspend trading on specific assets or across entire exchanges to maintain market stability and granting SEC the authority to issue directives to exchanges in times of systemic threats. This includes the authority to suspend trading on specific assets or across entire securities exchanges when necessary to maintain market stability.[6] By embedding systemic risk oversight into the legal framework, the Act ensures that the SEC can act preemptively and decisively to prevent market disruptions.

The power to suspend trading in particular assets or across entire securities exchanges when market integrity or stability is under threat, gives the SEC a legal basis to intervene in times of crisis—such as during sudden market crashes, speculative bubbles, or external economic shocks. This helps to prevent panic selling, contain contagion, and restore investor confidence.

This approach to systemic risk management entails;

• Increased resilience to financial shocks;
• Greater investor confidence due to the presence of clear crisis-management mechanisms;
• Enhanced market discipline, as participants are aware of the regulator’s power to act swiftly;
• Better alignment with international regulatory standards on financial system stability (e.g., as recommended by the International Monetary Fund and the Financial Stability Board).
• Ultimately, the systemic risk provisions in the ISA 2025, reflect a maturing regulatory environment, positioning Nigeria to build a more stable, attractive, and globally competitive capital market.

5. Expanded Scope of the Investor Protection Fund (IPF)

The Act broadens the scope of the Investor Protection Fund to cover losses arising from the revocation or cancellation of a brokerage firm’s license, extending beyond the previous coverage limited to bankruptcy or negligence. (Sections 198 –209 of the Act redefine the scope and governance of the Investor Protection Fund) Under Section 209 and 213 ISA 2025, the Investor Protection Fund (IPF) now covers investor losses due to the revocation or cancellation of a broker’s license, extending beyond the previous scope limited to bankruptcy or insolvency. This expansion enhances investor confidence by providing greater assurance of recourse in cases of intermediary failures.[7] Previously, compensation was limited to cases of bankruptcy, insolvency, or proven negligence. With this new provision, investors now have access to financial recourse even when a broker’s license is revoked for regulatory breaches or misconduct—regardless of whether bankruptcy is declared.

Expanding the scope of the IPF implies:

• greater investor confidence by offering broader financial protection against intermediary risk;
• reduction in perceived risks associated with participating in the capital market, especially for retail and unsophisticated investors;
• higher regulatory credibility, as market participants know that non-compliant or poorly managed firms can be sanctioned without unduly harming investors; and
• alignment with international investor protection standards, improving its appeal to foreign investors.

Overall, this reform will facilitate a more inclusive, trustworthy, and resilient market, creating the essential climate for deepening capital formation and increasing participation across the board.

6. Merger Control for Public Companies

Section 140 – 142 ISA, 2025 mandates that no public company shall undertake schemes, transactions, arrangements, or issue securities related to corporate actions and restructurings without prior approval from the Securities and Exchange Commission (SEC). This provision reinforces the SEC’s merger control prerogative over public companies, supplementing existing regulations to ensure fair and transparent corporate restructuring processes. This also, expands the SEC’s oversight into areas traditionally governed solely by the Federal Competition and Consumer Protection Commission (FCCPC), fostering regulatory synergy.

For public companies, this implies:

• Strengthened regulatory oversight: It ensures that all corporate restructurings are conducted in a fair, transparent, and lawful manner, protecting shareholders—particularly minority investors—from unfair treatment or insider dealings.
• Improved market integrity: By requiring SEC approval, the Act discourages backdoor deals and ensures that corporate actions align with market rules and best practices.
• Streamlined enforcement: This provision complements existing competition and corporate law frameworks, creating clearer and more cohesive procedures for regulatory intervention in merger and acquisition activities.
• Boosted investor confidence: Investors are more likely to trust a market where corporate restructuring is thoroughly vetted for fairness and regulatory compliance.
• Ultimately, this provision promotes a well-regulated and predictable capital market environment, which is essential for encouraging long-term investment and facilitating sustainable corporate growth.

7. Introduction of Legal Entity Identifiers (LEIs)

To improve transparency in securities transactions, the Act (Section 123 ISA, 2025) introduces the mandatory use of Legal Entity Identifiers by participants in capital market activities. This measure aligns with international best practices and enhances the traceability of market participants.[8] The mandatory implementation of LEIs is a strategic move to enhance the integrity, transparency, and stability of Nigeria’s capital market, aligning it with global standards and fostering a more robust investment environment. LEIs are globally recognized alphanumeric codes that uniquely identify legal entities participating in financial transactions. Their introduction enhances transparency, accountability, and traceability in the market by enabling regulators, investors, and counter-parties to accurately identify participants in securities transactions.

Introduction of LEIs implies:

• This provision aligns Nigeria’s regulatory framework with international standards set by organizations such as the Financial Stability Board (FSB) and IOSCO, which promote LEIs to improve systemic risk monitoring and combat market abuse.
• By making LEIs compulsory, the SEC strengthens its surveillance capabilities, facilitates more effective cross-border cooperation, and fosters a more secure and trustworthy investment environment.
• Ultimately, this contributes to improved investor confidence, market integrity, and Nigeria’s integration into the global financial system.

8. Exchange Structure and Financial Infrastructure Provisions:

Section 27 Investment and Securities Act (ISA), 2025 introduces a classification system for securities exchanges, categorizing them into Composite Securities Exchange and Non-Composite Securities Exchange to enhance regulatory clarity and market operations[9]. Composite Securities Exchange allows the listing and trading of all categories of securities and financial products. Non-Composite Exchanges are specialized exchanges that focus on a specific type of security or financial product, such as commodities or digital assets.

Additionally, Sections 41–44 of the Act incorporates provisions for Financial Market Infrastructure, including regulations for Central Counter-parties, Clearing Houses, and Trade Depositories. These measures aim to standardize and simplify the registration and operation of securities exchanges, ensuring greater transparency, regulatory oversight, and overall market efficiency.

This innovation signifies that;

• Composite Exchanges will have the flexibility to list and trade all categories of securities and financial products, offering a broad platform for market participants to engage with a diverse range of assets.
• Non-Composite Exchanges, on the other hand, will be specialized, focusing on specific asset classes such as commodities, digital assets, or other niche financial products. This distinction aims to streamline market operations and better align regulatory oversight with the unique characteristics of each exchange type.
• Furthermore, the strengthening of the financial market infrastructure by incorporating provisions for Central Counter-parties (CCPs), Clearing Houses, and Trade Depositories, are designed to:
• Standardize and simplify the registration and operational processes for securities exchanges.
• Enhance transparency and ensure greater regulatory oversight by defining the roles and responsibilities of market intermediaries.
• Improve market efficiency, reduce systemic risks, and foster trust by creating a more organized and resilient financial ecosystem.

Conclusion:

The Investment and Securities Act (ISA) 2025, represents a landmark reform aimed at modernizing Nigeria’s capital market, ensuring greater regulatory oversight, investor protection, and market transparency. The innovations introduced by the Act, such as enhanced regulatory authority for the SEC, the recognition of digital assets, and strengthened investor protection mechanisms, position Nigeria’s capital market for sustainable growth and global competitiveness. By aligning with international standards and incorporating advanced provisions like the introduction of Legal Entity Identifiers (LEIs) and the regulation of commodities exchanges, the ISA 2025 fosters a more transparent, secure, and efficient market environment. These reforms are expected to attract both domestic and international investors, diversify market offerings, and enhance Nigeria’s position as a key player in the global financial ecosystem.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Please note that this does not constitute legal advice. If you have any question or want to speak to a lawyer about your fintech rights, please email us at legal@marsfield-lp.com, or call us via +2348064703847. Also, feel free to visit our website www.marsfield-lp.com.

[1]https://www.arise.tv/tinubu-signs-investments-and-securities-act-2025-strengthening-capital-market-regulations/ accessed 29^th March, 2025, https://aln.africa/insight/imminent-changes-to-nigerias-investments-and-securities-law/ accessed 29^th March, 2025

[2] https://www.iosco.org/library/index.cfm?section=pubdocs&year=2023  accessed 9^th April, 2025

[3] https://www.arise.tv/tinubu-signs-investments-and-securities-act-2025-strengthening-capital-market-regulations/ accessed 29^th March, 2025

[4] https://sec.gov.ng/statement-on-digital-assets-and-their-classification-and-treatment/ accessed 1^st April, 2025

[5] https://businessday.ng/news/article/heres-what-to-know-as-senate-backs-capital-market-reform-bill accessed 29^th March, 2025

[6] ibid

[7] https://businessday.ng/news/article/heres-what-to-know-as-senate-backs-capital-market-reform-bill accessed 29^th March, 2025

[8] https://www.arise.tv/tinubu-signs-investments-and-securities-act-2025-strengthening-capital-market-regulations/ accessed 29^th March, 2025

[9] ibid