An Overview Of Key Provisons In Nigeria's Investment And Securities Act 2025

INTRODUCTION

The Investments and Securities Act 2025 (the "Act" or ISA 2025), signed into law in March 2025 by President Bola Tinubu marks a significant overhaul of Nigeria's capital market framework. It repeals the Investments and Securities Act No. 29 of 2007 (the "Repealed Act"), ushering in a more contemporary legal framework designed to enhance regulatory oversight, strengthen investor protection, deepen market infrastructure, and align Nigeria's financial market with global best practices, particularly those adhered to by members of the International Organisation of Securities Commissions (IOSCO).

This overview analyses the key provisions and innovations introduced by the Act and to the extent possible contrasts them with the Repealed Act.

Key Reforms and Innovations in the ISA 2025

1. Enhanced Regulatory Powers of the Securities and Exchange Commission (SEC) and Reframing of the SEC's Objectives (Part I): Section 2 of the Act strengthens SEC's authority, aligning its functions with international standards set by the International Organisation of Securities Commissions (IOSCO). These enhanced powers ensure SEC's continued "Signatory A" status, bolstering the Nigerian capital market's global attractiveness. For the first time, the Act explicitly sets out SEC'S objectives, distinct from its operational functions, thereby improving accountability and clarity of purpose. The Act in all material respects seeks to entrench the independence of SEC as a regulatory institution in Nigeria.
2. Classification of Securities Exchanges and Inclusion of Financial Market Infrastructures (Part V): Section 27 of the Act introduces a broad categorisation of "securities exchanges" for ease of registration and operations to include Composite and Non-composite categories. The Composite exchange permits the listing and quotation of all types of securities, commodities, and products or instruments on its platform, while a non-composite exchange focuses on a specific type of security or product.

In order to further assert the supervisory and regulatory oversight of SEC over its regulatory subjects, the Act requires that the approval of SEC must be first obtained before the appointment or removal of the Chief Executive Officer and other principal officers of a securities exchange.

In addition, the Act now recognises Exchange Holding Companies and securities listings that arise between a securities exchange and its related parties. To manage potential conflicts of interest that may arise from such relationships and in the overall interest of the public, the Act saddles SEC with the responsibility of putting in place an adequate regulatory framework for the operability of related exchange transactions.

Furthermore, Part V of the Act removed references to "Capital Trade Points" and adopted the term "Financial Market Infrastructures (FMIs)", thereby creating a robust provision for the operation, registration, and regulation of different types of Financial Market Infrastructure, including central counterparties, clearing houses, trade repositories, central securities depositories, and securities settlements systems thereby modernising the market's structural framework. This innovation includes specific provisions for FMI insolvency, prioritising FMI default procedures and collateral management over general insolvency laws and protecting FMI actions from invalidation by such laws.

The Act also restricts Nigerian courts from enforcing or recognising foreign insolvency orders or acts performed by foreign insolvency officials if such actions would contravene Nigerian insolvency laws.

3. Management of Systemic Risk (Part VIII): Part VIII of the Act introduces measures for monitoring, managing, and mitigating systemic risks within the Nigerian capital market. These provisions empower SEC to suspend trading on specific assets or across exchanges to prevent market disruptions, thereby enhancing market stability. Furthermore, the Act permits collaborations between SEC and other regulatory authorities for the purpose of monitoring and management of systemic risks.

4. Regulation of Securities (Part IX): In addition to addressing matters covered by the Repealed Act dealing with the registration of securities, and the responsibility of players in the Nigerian capital market ISA 2025 has introduced additional provisions for processing unclaimed dividends of public companies. The provisions of the new Act in this respect supersedes at all times, similar provisions in any other law in Nigeria, including the Companies and Allied Matters Act (CAMA).

Invitations to the Public

A critical inclusion in this Part of the Act is on the modification of the term 'invitations to the public' that broadens the categories of issuers to the following:

• a public company which securities sought to be offered to the public have been registered with SEC;
• a statutory body or bank established pursuant to an Act of the National Assembly empowered to accept deposits and savings from the public;
• an entity licensed by the Central Bank of Nigeria to accept deposits and savings from the public;
• a collective investment scheme;
• government body or a government agency approved by the Commission to issue securities under the Act; and
• a free trade zone entity whose capital raising exercise has been approved by the Commission.

This expansion facilitates a wider range of innovative products and offerings, promoting commercial and investment activities, subject to SEC approval and stipulated controls. The inclusion of entities such as government bodies or agencies are more effective models of access to finance for developmental projects. A more significant implication of the expansion is the attendant implication on a free trade zone entity to the effect that it immediately becomes subject to relevant tax laws and regulations in Nigeria upon approval of its capital raising exercise by SEC.

Notably, issuers of securities under the Act are exempt from the provisions of section 142 of the CAMA 2020 which deals with pre-emptive rights of existing shareholders.

5. Conduct of Securities Business (Part X): The Act has outrightly prohibited cash transactions in the capital market. The Repealed Act had only imposed prohibitions on cash transactions in excess of amounts determined from time to time by SEC.

Legal Entity Identifier

The Act makes it mandatory for all parties to a securities transaction to have a legal entity identifier. This will enhance transparency in securities transactions and help mitigate systemic risks. This requirement aims to improve the traceability and accountability of market activities.

6. Trading in Securities (Part XI): The Act has introduced new disclosure requirements for insider trading and criminalises trading on non-public material information, aligning with international benchmarks. Section 137(3) of the Act requires a person who becomes an insider in a public company or any other issuer, other than a collective investment scheme, to file a report disclosing any direct/indirect beneficial ownership of/or control over securities of the public company or other issuer within 14 days of becoming an insider or of carrying out an insider transaction or within such other period as may be prescribed by regulation.

In addition to the foregoing, the Act criminalises any contravention of the provision mandating the filing of insider reports or prohibiting insider trading. The Act also introduces a reward mechanism for any person who gives information that facilitates the successful prosecution of a person who contravenes the provisions of this Part. Additional protection is given to employees who provide information leading to the prosecution of their employers who are about to or have committed an act in contravention of this provision.

7. Mergers, Take Overs and Corporate Restructuring (Part XII): Part XII of the Act establishes a streamlined regulatory framework for mergers, takeovers and corporate restructuring. It mandates prior approval from the SEC for any proposal, scheme, transaction, arrangement, or issue of securities relating to these activities. This requirement is compulsory, and such approval must be obtained before public companies proceed to their sector-specific regulator and the Federal Competition and Consumer Protection Commission (FCCPC) for additional regulatory compliance. This provision ensures alignment with the Federal Competition and Consumer Protection Commission Act (FCCPCA, eliminating overlaps and clarifying jurisdictional boundaries between SEC, FCCPC and other sector regulators.

8. Collective Investment Schemes (CIS) (Part XIII): Under the Repealed Act, recognised CIS arrangements were unit trust schemes, open-ended investment companies; and real estate investment companies or trusts. However, ISA 2025 now expands the existing categories of CIS to include close-ended investment companies, specialised or alternative investment schemes (such as private equity funds and infrastructure funds), or such other schemes as may be approved by the Commission. In addition, "qualified investors" were not within the contemplation of the Repealed Act in relation to CISs, but ISA 2025 includes "qualified investors" in the definition of CIS, when looking at the targets of such schemes. Thus, any offering to "qualified investors" as defined by the Act, by any scheme operated as a CIS is subject to SEC's approval.

Another novel provision in this part of the Act is the requirement for SEC's approval before the appointment of a Trustee or Custodian may be terminated. The notice informing SEC of the intention to terminate a Trustee or Custodian's appointment must detail the reasons for such termination.

Section 196 of the Act explicitly prohibits ponzi or pyramid schemes and other illegal investment operations, prescribing stringent penalties, including substantial fines and imprisonment for promoters of such schemes. This provision strengthens investor protection and deters fraudulent activities.

9. Investor Protection Fund (Part XIV): Part XIV of the Act retains provisions relating to the Investor Protection Fund (the" Fund"). The objective of the Fund is to compensate investors for losses due to insolvency, fraud, or misconduct by capital market operators, aiming to bolster confidence and market stability. The Repealed Act gave investors direct access to making claims against the Fund upon the occurrence of any act of default by a capital market operator.

However, the Act now requires that a claim in the first instance be made by an investor directly to the defaulting capital market operator who is obliged to settle such claim within fourteen (14) days of it being made. In the event that the defaulting capital market operator is unable to settle any valid claim, the investor may make an application to the Exchange managing the Fund. The Exchange is mandated to verify the claim within ninety (90) days and settle the claim within fourteen (14) days of verification.

10. Legal Framework for Commodities Exchanges (Part XV): Part XV of the Act introduces a comprehensive legal regime for commodities exchanges and warehouse receipts. These provisions are essential for developing the commodities ecosystem, offering a structured framework for trading and storage.

The Act defines a new set of rules to govern the operations of a commodities exchange and excludes a commodities exchange from the general rules which apply to a securities exchange. The Act includes provisions that give SEC full regulatory oversight over the appointment and removal of the chief executive and other principal officers of a commodities exchange. In addition, the Act explicitly provides for registration of any person offering professional services in relation to the activities of a commodities exchange.

To facilitate trading on a commodities exchange, the Act now permits registration of warehouses where commodities traded on a commodities exchange are stored. The operation of any such warehouse without prior registration with SEC is an offence under the Act. Furthermore, the Act requires that operators of warehouses insure the warehouse as well as commodities stored therein. Only warehouses registered in accordance with the Act can issue warehouse receipts that can be traded on a commodities exchange, provided the commodities in respect of which they are issued are listed on the commodities exchange. The Act also recognises collateral management companies that will undertake the business of facilitating the pledging of warehouse receipts.

11. Framework for Issuance of Debt Securities (Part XVI): The Act introduces a comprehensive provision governing the issuance of debt securities by companies and supranational entities. Under these provisions, all issuers must obtain prior approval from SEC before accessing the public market. The framework strengthens oversight in the debt securities market, fostering accountability and market integrity.

The Act further strengthens the existing framework for issuance of debt securities by government agencies but introduces modifications for alignment with best practices. The first modification is the exclusion of the Federal Government from the application of Part XVI of the Act. Reference to Federal Government (as a nominal issuer) in the Repealed Act was not retained in the Act because the Debt Management Office (DMO) (a Federal Government agency) is responsible for issuance of Federal Government debt securities. In addition, the Act now makes Part XVI applicable to borrowings by companies sponsored or guaranteed by the federal government, state government, federal capital territory, or local government. The types of debt securities that can be issued by identified government bodies have been expanded from bonds and promissory notes to include non-interest financial instruments and such other instruments approved by SEC. The debt securities issued pursuant to this part of the Act may be:

• general obligation debt securities wherein such securities are issued on the full faith and credit of the issuing body and payable out of the revenue fund or other statutory fund of such body, or
• a project-tied debt securities issued for specific projects and charged or payable out of the revenue for the project, a specific asset or assets, or a guarantee from a tier of government or other acceptable third party.

A government body desirous of issuing debt securities must meet certain requirements prescribed in the Act. Also, the Act requires that debt securities issued by government bodies be in dematerialised form and electronically registered.

12. The Investments and Securities Tribunal (Part XVII): The Act amends the composition, constitution, and appointment qualifications of members of the Investments and Securities Tribunal to enhance its capacity to adjudicate capital market disputes effectively, thereby improving the enforcement of securities laws. The composition of the tribunal has been increased to 12 members as opposed to 10 members provided in the Repealed Act. Also, the appointment of members of the Tribunal is no longer the duty of the Minister of Finance. Under the Act, the President of the Federal Republic of Nigeria has the power to appoint members of the Tribunal upon recommendation of the Minister.

The qualification of the Chief Registrar of the Tribunal was not defined under the Repealed Act. However, Section 324(2) of the Act now provides that the Chief Registrar of the Tribunal shall be a legal practitioner with at least ten (10) years' post call experience in capital market matters.

The issue of jurisdiction of the Tribunal has been given some consideration in the Act. The Repealed Act only recognised the original jurisdiction of the Tribunal. However, the Act now recognises the Tribunal's appellate jurisdiction and outlines matters which fall within the appellate jurisdiction of the Tribunal.

13. Recognition and Regulation of Virtual Assets (Part XVIII): A significant development in the Act is the explicit recognition of virtual/digital assets and investment contracts as securities. In Section 357 of the Act, virtual assets are included in the definition of "securities". This inclusion brings Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOs), and Digital Asset Exchanges under the regulatory oversight of the SEC, effectively addressing the evolving landscape of digital securities.

14. Pre-Action Notice: The Act also introduces of the requirement for a pre-action notice under Part XVIII to the effect that no suit may be commenced against SEC unless a written notice of intention to commence legal proceedings detailing the cause of action, claim, reliefs and address of the intending plaintiff has been given to SEC and a period of at least fourteen (14) days from the day of giving the notice have elapsed. This provision aims to shield SEC from frivolous court actions which ordinarily would be resolved through non-court mechanisms and enables SEC to focus on its regulatory and supervisory responsibilities without any form of distractions.

15. General Review of Penalty Regime: The Act has occasioned a general overhaul of the existing penalty regime reflecting market realities. Through the imposition of stiffer fines, the threat of revocation of licences, possible criminal prosecution, demands for refund with interests, compensation and other penalties, SEC intends to ensure a degree of predictability and additional structure into the capital market.

CONCLUSION

The Act introduces several improvements over the Repealed Act. It not only presents a comprehensive reform of Nigeria's capital market laws but also addresses previous shortcomings by incorporating provisions that align with contemporary financial and investment developments. These changes are poised to enhance market integrity, protect investors, streamline market processes and promote sustainable economic growth.

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.