BREAKING: ISA 2024 Will Spur Capital Market Growth In Nigeria

At long last, following the President’s assent, the Investment and Securities Act (ISA) 2024 has come into force, effectively repealing the ISA 2007. The replacement of ISA 2007 with ISA 2024 has taken several years, primarily on account of legislative, political, and economic factors. Notwithstanding the long delay, Nigeria can now boast of a modernised and globally aligned regulatory framework that has addressed key issues such as digital assets, investor protection, and financial market infrastructure, all geared towards boosting investor confidence and strengthening the capital market in Nigeria.

It goes without saying that, with the passage of time, the ISA 2007 developed several shortcomings that necessitated its repeal. It did not provide a regulatory framework for digital assets and other fintech innovations, a situation that created uncertainty in the market and limited the ability of the Securities and Exchange Commission (SEC) to oversee virtual asset service providers (VASPs) and digital asset exchanges. It also did not sufficiently address the challenge posed by fraudulent investment schemes such as Ponzi schemes.

The penalties for insider trading and market manipulation were not stiff enough to discourage perpetrators.

Furthermore, there were no comprehensive provisions regulating clearinghouses, trade depositories, and central counterparties, which increased the risk of systemic failures in the financial market and made it more difficult to manage crises. The defunct Act did not make adequate provisions for the regulation of commodity exchanges and derivatives markets, limiting structured financing for agriculture and mining.

Another major pitfall of ISA 2007 has to do with the fact that it lacked sufficient oversight provisions on corporate actions like mergers and acquisitions or restructuring involving public companies. This created opportunities for regulatory arbitrage, where companies could manipulate transactions to avoid scrutiny. Overall, ISA 2007 did not fully comply with global best practices set by the International Organisation of Securities Commissions (IOSCO). This weakened Nigeria’s position in the global investment community and reduced foreign investor confidence.

In essence, therefore, the repeal of ISA 2007 and its replacement with ISA 2024 are aimed at modernising Nigeria’s capital market and aligning it with global best practices. The ISA 2024 enhances the SEC’s regulatory powers, ensuring stricter oversight of market participants, better investor protection, and greater enforcement against malpractices.

It introduces stricter penalties for operators of fraudulent investment schemes, including heavy fines and longer prison sentences. Interestingly, it has expanded the scope of the Investor Protection Fund (IPF) to cover more categories of investor losses, such as losses from the revocation or cancellation of a brokerage firm’s license, ensuring better compensation mechanisms and offering greater security to investors.

One notable aspect of the new law is that it recognises digital assets as securities, providing a legal framework for Virtual Asset Service Providers (VASPs) and Digital Asset Exchanges. For the first time, virtual assets and investment contracts are formally classified as securities under Nigerian law. This brings VASPs, Digital Asset Operators (DAOPs), and Digital Asset Exchanges under the SEC’s regulatory purview, providing a clear legal framework for digital assets. ​

Similarly, ISA 2024 introduces a stronger regulatory framework for financial market infrastructures (FMIs), such as clearinghouses and central depositories, ensuring stability and reducing systemic risks in Nigeria’s capital markets. It creates a legal framework for commodity exchanges and warehouse receipts, allowing for more structured commodity trading and agricultural financing.

This is particularly important for Nigeria’s agricultural and mining sectors, which were not well integrated into the capital market under the ISA 2007. Under the new law, public companies must obtain SEC consent before engaging in mergers, acquisitions, or issuing securities. To this end, the Act mandates that no public company shall undertake schemes, transactions, arrangements, or issue securities related to corporate actions and restructurings without prior approval from the SEC.

The idea is to ensure that corporate restructuring activities comply with market regulations and enhance transparency.
It bears repeating that the ISA 2024 ensures a more transparent, efficient, and competitive capital market consistent with global standards set by the IOSCO.

Expectedly, this should strengthen investor confidence, enhance market integrity, encourage foreign investment, and ensure that Nigeria retains its “Signatory A” status under IOSCO’s Enhanced Multilateral Memorandum of Understanding (EMMoU).

The enactment of ISA 2024 is a welcome development that promises to modernise Nigeria’s investment and securities laws, improve regulatory oversight, protect investors, and support emerging financial technologies. For achieving this feat, the National Assembly Committees on the Capital Market, the Securities and Exchange Commission, and indeed the entire Capital Market community in Nigeria deserve a pat on the back.

– Prof Uche Uwaleke is the Director of the Institute of Capital Market Studies at Nasarawa State University, Keffi and President of the Capital Market Academics of Nigeria