BY ADERONKE ALEX-ADEDIPE AND HILLARY OKOROTIE
Introduction
On March 29, 2025, President Bola Ahmed Tinubu, signed into law the Investment and Securities Act (the “Act”) 2024, repealing the Investment and Securities Act(“ISA”)of 2007. The Act introduces significant changes to the Nigerian capital market which aims to expand the regulatory oversight of the Securities and Exchange Commission, strengthen market regulation and enhance investor protection.
In this newsletter, we highlight some of the notable provisions of the Act.
1. Merger Notification by Public Companies
A key change introduced by the Act is the modification of SEC’s regulatory oversight concerning mergers. Under the previous ISA, SEC had regulatory oversight over mergers and restructuring of all companies. However, with the enactment of the Federal Competition and Consumer Protection Act which empowers the Federal Competition and Consumer Protection Commission (FCCPC) with regulatory oversight over mergers of all companies, the authority of SEC has now been streamlined to oversee mergers and restructuring of only public and listed companies.
In addition, the Act empowers SEC to assess whether all shareholders involved in a transaction are treated fairly and equitably. For instance when a takeover bid is proposed asoutlined in the Act, SEC shall ensure that shareholders and directors of an offeree are aware of the identity of the acquirer and offeror, they have reasonable time to consider the take-over offer and are supplied with sufficient information necessary to assess the merits of such takeover offer. The Act aims to ensure transparency in acquiring voting rights and control of a company.
2. Classification of Exchanges
The Act introduces a new classification of securities exchanges, categorizing them as either (i) composite securities exchange or (ii) non-composite securities exchange. A composite securities exchange permits the listing of all types of securities, financial products and instruments on its platform, for instance, shares, bonds or virtual assets. A non-composite securities exchange, on the other hand, may be registered with SEC to list a single type of security, such as either shares or virtual assets but not multiple types of securities. It may also operate as an alternative trading system, a platform or facility that enables or facilitates the trading of securities between buyers and sellers.
In addition, the Act expressly provides that any person intending to operate a securities exchange must first register the exchange with SEC. Failure to comply may result in a term of imprisonment of up to five years or a fine of not less than the prescribed paid-up share capital of an exchange, or a daily penalty of at least ₦100,000 for the directors or promoters of the company. Furthermore, the company will be prohibited from continuing its operations.
The Act also introduces specific responsibilities for securities exchanges to ensure the proper governance of their operations. These responsibilities include: (i) conducting business in a fair and transparent manner, with due regard for the rights of members, participants, and their clients; (ii) ensuring compliance with the provisions of the Act by its members and participants in relation to listed securities; (iii) promptly notifying the SEC of any issue that may pose a risk to the financial markets upon becoming aware of such issue; and (iv) informing SEC immediately upon the commencement of any insolvency proceedings, among other obligations.
3. Virtual Assets
Another significant addition to the Act is the regulation of virtual assets. In the previous ISA, securities were limited to debentures, stocks or bonds issued by the government or by a corporate body. They also included rights or options in respect of any such debentures, stocks, shares, bonds or commodities futures. In the wake of the adoption of cryptocurrency transactions worldwide, SEC in 2022 issuedthe Rules on Digital Assets Issuance, Offering Platform, Exchange and Custody with the aim of regulating digital and virtual assets. The Act, however, strengthens the credibility of crypto assets backed transactions by expanding the definition of securities to include virtual assets.
4. Prohibition of Ponzi Schemes
The Act expressly prohibits the operation of Ponzi schemes and other unregistered investment schemes. It describes a Ponzi scheme as an investment arrangement in which returns are paid to existing members from funds contributed by new members, typically with a promise of high returns and little or no risk. It also includes any scheme where participants earn money primarily by recruiting new members. The Act provides that operators of such schemes will upon conviction be liable to imprisonment for up to ten years, a fine of five million naira or both.
5. Access of User Data
In addition to its regulatory functions, the Act empowers SEC to obtain subscriber’s data or records held or maintained by internet service providers, mobile network operators, and other electronic communication service providers in Nigeria in the event of a violation or suspected violation of the provisions of the Act by the subscriber.This may include payment details, or the content of communication connected with the violation.
6. Investments and Securities Tribunal
There are also significant amendments and additions made to the Investments and Securities Tribunal (the “Tribunal”) in relation to the constitution of the tribunal and resolutionof capital market disputes. In the previous ISA, the Tribunal was constituted by 10 persons appointed by the Minister of Finance, however in the Act the Tribunal will now be constituted by 12 persons appointed by the President on the recommendation of the Minister of Finance. The Minister also possesses the power to recommend disciplinary actions to the President against the members of the Tribunal.
Secondly, the Act has also provided a breakdown of the jurisdiction of the Tribunal, providing matters the tribunal has original jurisdiction over and matters it has appellant jurisdiction over. In respect of its original jurisdiction, the Tribunal shall exercise original jurisdiction over matters such as (i) complaints against a direct action of SEC; and (ii) a matter referred to SEC where SEC fails to act on such matter within sixty days of filing a complaint. While in respect of its appellant jurisdiction, the Tribunal shall handle matters such as (i) disputes involving stakeholders in the capital market e.g. between SEC and any person in respect of the capital market, capital market operators and their client or an investor and a securities exchange etc; (ii) matters arising from the management or operation of collective investment schemes; and (iii) matters arising from the approval, regulation of mergers, takeover and restructuring of public companies.
Conclusion
The Act introduces key reforms aimed at improving market transparency, and regulatory clarity. The Act also intends to protect investors by totally prohibiting Ponzi schemes and other similar investments thereby creating trust in the Nigerian capital market. With stronger provisions and regulatory clarity, the Act positions Nigeria’s capitalmarkets for sustainable growth and investments.