Market News

BY Iheanyi Nwachukwu 

Nigeria’s new capital market laws now officially classify cryptocurrencies and other virtual assets as securities for the first time, in what would lead to greater transparency and increased investments.

President Bola Tinubu recently assented to the Investments and Securities Act (ISA) 2024, which repeals the Investments and Securities Act No. 29 of 2007.

The Act explicitly recognises virtual/digital assets and investment contracts as securities and brings Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs) and Digital Asset Exchanges under the SEC’s regulatory purview. This means businesses dealing in digital assets must register with the SEC and comply with its guidelines, a crucial step in curbing fraudulent activities in the digital space while fostering trust and innovation in blockchain technologies.

Emomotimi Agama, Director-General, SEC, who lauded the bold move as a transformative step for the capital market said the new law will boost investments in digital assets.

Nigeria initially responded with panic to the rise of cryptocurrencies, which started gaining traction around 2015 following a crash in oil prices that led to a depreciation of the naira.

Bitcoin and other cryptocurrencies became a safe haven for many Nigerians, pushing Nigeria to become the second-largest holder of cryptocurrencies globally, after the United States.

The surge in demand for digital currencies, however, intensified the pressure on the naira exchange rate.

In response, the Central Bank of Nigeria (CBN) ordered banks to close all accounts associated with cryptocurrency transactions, in a move aimed at stifling the trade.

Traders shifted to underground operations, relying on peer-to-peer (P2P) exchanges to continue business. Binance, a major global crypto exchange, quickly adapted, offering P2P services to Nigerian users.

When President Bola Tinubu assumed office in mid-2023 and appointed Olayemi Cardoso as CBN governor, the government eased its stance on cryptocurrencies, signaling a possible shift in Nigeria’s regulatory approach to digital assets.

“The ISA 2024 reflects our commitment to building a dynamic, inclusive, and resilient capital market. By addressing regulatory gaps and introducing forward-looking provisions, the new Act empowers the SEC to foster innovation, protect investors more efficiently and reposition Nigeria as a competitive destination for local and foreign investments,” Agama said.

“We commend all stakeholders within and outside the capital market community for their unwavering solidarity towards the achievement of this historic milestone and solicit their continued collaboration in respect of the effective implementation of the ISA 2024 for the benefit of our economy,” Agama said.

Speaking on this development, Oluropo Dada, 13th president and Chairman of Council Chartered Institute of Stockbrokers (CIS) said, “This Act is a testament to our collective dedication to advancing the capital market and securing its future as a catalyst for economic development. The enactment of the Investment and Securities Act 2024 underscores the government’s commitment to fostering transparency, efficiency, and stability in our financial markets.”

“It introduces comprehensive reforms aimed at modernising the regulatory framework, enhancing investor protection, and creating a more robust platform for economic growth and development. As capital market professionals, we are confident that this Act will deepen market integrity, boost investor confidence, and expand the range of investment opportunities available to Nigerians and global investors alike,” Dada said.

Also speaking, Sam Onukwue, chairman, Association of Securities Dealing Houses of Nigeria (ASHON) said, “At the basic level, the ISA 2025 is transformative. It will strengthen regulatory oversight of the capital markets with the overall objective of enhancing investor protection.

“We believe it will rekindle the confidence of market stakeholders, which will, in turn, engender significant growth of the market going forward. For operators, it provides diversification opportunities with the expanded scope beyond traditional equities and fixed income,” Onukwue said.

Eguarekhide Longe, managing director NASD said, “The ISA 2025 is a welcome development. Our market has always placed a premium on investor protection. With the unfolding digital products and the need to attract youths, our regulatory framework should be strengthened.

He said, “By the signing into law of the new Act, I believe that some of the key issues , including investor protection and fraud detection, recognition of virtual assets as securities and systemic risk management will be well-implemented.”

Akin Akeredolu-Ale, managing director, Lagos Commodities and Futures Exchange (LCFE) said, “We have people that now understand that the Capital market is the barometer of the economy. And that the enabling environment, particularly the legal framework is the bedrock for growth of the capital market, and overall the economy.

Composite & non-composite exchanges

The Act also classifies Securities Exchanges into Composite and Non-composite Exchanges.

A Composite Exchange is one in which all categories of securities and products can be listed and traded, while a Non-composite Exchange focuses on a singular type of security or product.

There are also new provisions on Financial Market Infrastructures such as Central CounterParties, Clearing Houses and Trade Depositories.

The new Act introduces transformative provisions to further align Nigeria’s market operations with international best practice.

Also, the enactment of the ISA 2024 reaffirms the authority of the Securities and Exchange Commission (SEC) as the apex regulatory authority of the Nigerian Capital Market.

The Act enhances the regulatory powers of the SEC in a manner comparable with benchmark global securities regulators. These enhanced powers and functions ensure full conformity with the requirements of IOSCO’s Enhanced Multilateral Memorandum of Understanding (EMMoU), enabling the SEC to retain its “Signatory A” status and enhancing the overall attractiveness of the Nigerian capital market.

The Act introduces provisions that exempt transactions facilitated through or otherwise involving Financial Market Infrastructures from the application of general insolvency laws. It also introduces provisions for the monitoring, management and mitigation of systemic risk in the Nigerian capital market.

The Act expands the categories of issuers, as a key step towards the introduction of a wide range of innovative products and offerings as well as the facilitation of “commercial and investment business activities”, subject to the approval of the Commission and other controls stipulated in the Act.

Legal Framework for Commodities Exchanges – The Act contains a new Part which provides for the regulation of Commodities Exchanges and Warehouse Receipts. These provisions are essential to allow for the development of the entire gamut of the Commodities ecosystem.

Issuance of Securities by Sub-Nationals and their Agencies- Salient provisions of the Act address existing restrictions in respect of raising of funds from the capital market by Sub-Nationals to allow for greater flexibility in this regard.

The Act introduces the mandatory use of Legal Entity Identifiers (LEIs) by participants in capital market transactions. This stipulation is designed to improve transparency in the conduct of securities transactions.

Enforcement Against Illegal Investment Schemes – The Act expressly prohibits Ponzi Schemes and other unlawful investment schemes, while prescribing stringent jail terms and other sanctions for the promoters of such schemes.

Strengthening the Investments and Securities Tribunal- The Act amends some key provisions in the repealed ISA 2007 pertaining to the Composition of the Tribunal, constitution of the Tribunal, qualification and appointment of the Chief Registrar as well as the jurisdiction of the Tribunal to enhance the ability of the Tribunal to optimally discharge its mandate.