The Investments and Securities Act, 2025 (ISA 2025), which replaced ISA 2007, is a sweeping piece of legislation aimed at tightening oversight, improving investor protection, and managing systemic risk in Nigeria’s capital market.
While it introduces several commendable reforms, a closer examination reveals some questionable areas that raise critical legal, ethical, and practical concerns.
Below are ten such areas, highlighting the good and the bad and how they impact everyone involved.
1. Heavy-handed penalties for non-compliance
Section 82(4)
While it is reasonable for the Commission to demand documents from capital market participants to manage systemic risk, the penalty of ₦20 million, followed by a daily ₦450,000 fine, and the potential ₦5 million fine or 1-year jail for directors, is alarmingly steep, even before due process.
What’s good? It ensures compliance and underscores the seriousness of systemic risk.
What is this questionable?
These penalties could cripple smaller operators, discourage market participation, and erode trust in fair regulatory enforcement. There is no gradation or scaling of fines based on the severity or context of the offence.
2. Discretionary power to suspend trading without hearing
Section 83(2)
The Commission may suspend trading on any exchange or security without notice or hearing, purely based on its opinion.
What’s good? In emergencies, rapid intervention can prevent market collapse.
What is this questionable?
This places unchecked power in the hands of regulators. Without clear procedural safeguards or a requirement for transparency, it risks abuse, market manipulation, or politicisation of regulation, potentially shaking investor confidence.
3. Ambiguous limits on accepting gifts
Section 20
The Commission may accept gifts (think bribes) – including land and money – provided they don’t contradict its objectives.
Why is this good?
It allows flexibility in fundraising or receiving donations for operational improvements.
What’s questionable? The provision is vague and open-ended. “Conditions inconsistent with objectives” is subjective, and there is no formal disclosure mechanism. This opens the door to conflicts of interest, backdoor lobbying, or influence peddling.
4. Confidentiality vs. Transparency in inter-regulatory sharing
Section 84(2)
The Commission can share sensitive information with other financial regulators, who must promise confidentiality.
Why is this good?
It encourages inter-agency cooperation, especially in managing systemic risk.
What’s questionable? There’s no enforcement mechanism or oversight on how shared data is handled. Investors and market players have no right to know if their private data is exchanged or misused. It raises privacy and accountability issues.
Read also: All you should know about SEC’s new rules for crypto investment in Nigeria
4a. Lack of comprehensive data privacy protections
Section 84(2)
Though the Act requires confidentiality undertakings from other regulators, it does not establish clear guidelines on how private data is collected, processed, stored, or protected by the Commission itself.
What’s good? It acknowledges the sensitivity of shared regulatory information.
What’s questionable? There is no mention of cybersecurity obligations, investor rights to data access or redress, or compliance with broader data protection laws. In an era of increasing digital threats, the absence of such provisions exposes the market to reputational and legal risk.
5. Excessive criminal liability for unregistered securities
Section 86(7)
Issuing or offering unregistered securities may lead to fines of ≥50% of security value, and directors could face ≥10% fines or 5 years’ imprisonment.
What’s good? It deters fraudulent offerings and protects the public.
What’s questionable? This may be disproportionate for technical or procedural oversights, especially for first-time offenders. It doesn’t distinguish between malicious intent and administrative errors, potentially discouraging innovation or capital raising.
6. Overreliance on the Commission’s discretion
Sections 83, 86, 157, etc
Whether suspending exchanges, approving collective schemes, or rejecting securities, the Commission is often empowered to act based on what it “considers necessary” or what it “is satisfied with.”
What’s good? This gives regulators room to exercise expert judgment.
What’s questionable? These powers are too broad, with minimal checks and balances. There’s a risk of subjective interpretations, which can undermine consistency and create regulatory uncertainty for market participants.
7. Lack of clarity on the compensation mechanism for investors
Sections 198–199
The Act mandates the creation of an Investor Protection Fund (IPF) to compensate for losses due to insolvency or fraud.
What’s good? It’s a valuable safety net for investors.
What’s questionable? There’s no clarity on how much compensation, how long it takes, or how claims are prioritised. This ambiguity can delay justice, erode trust, and confuse investors, especially retail ones.
8. Undefined standards for “misleading” scheme names
Section 156
Unregistered entities are prohibited from using misleading references like “investment scheme” or “unit trust” in their names.
What’s good? Prevents fraud and protects the public from being misled.
What’s questionable? The term “misleading” is not well-defined. Startups or fintech firms with legitimate offerings might be penalised unfairly. A clearer standard or safe harbour clause would provide greater legal certainty.
8a. Lack of direct language against Ponzi schemes and fake platforms
Sections 86, 156, 157
While Ponzi schemes are not directly named in the Act, several provisions aim to prevent their proliferation. These include requirements for registration of securities (Section 86), restrictions on misleading names (Section 156), and mandatory authorisation of collective investment schemes (Section 157).
What’s good? These create multiple legal barriers for unlicensed or fraudulent investment promoters to operate.
What’s questionable? The lack of explicit terminology (“Ponzi schemes,” “fraudulent investment platforms”) may make prosecution harder or limit public understanding. A specific provision outlawing such scams would signal stronger regulatory intent and improve enforcement clarity.
9. Commission’s authority to demand pre-approval for foreign listings
Section 86(6)
Public companies must seek the Commission’s approval before listing their securities on a foreign exchange.
What’s good? Helps monitor capital flight and ensure cross-border compliance.
What’s questionable? It could discourage Nigerian firms from global expansion, adding red tape and slowing access to international capital markets. It places local regulators as gatekeepers to global opportunities.
10. Unclear limits on advertising for deposits
Section 96
Invitations to deposit money require consent and must comply with advertising restrictions.
What’s good? Protects the public from misleading investment pitches.
What’s questionable? What qualifies as an “invitation”? Is a tweet, video, or podcast subject to this law? The Act does not define modern marketing channels or thresholds, leaving digital advertisers in a grey zone.
Impact of the Investments and Securities Act, 2025, across the ecosystem
- The general public is only partially protected from scams and privacy abuses, as key threats like Ponzi schemes and data misuse are addressed indirectly, not head-on.
- Investors face uncertainty in compensation timelines, limited transparency on enforcement, and unclear information-sharing boundaries.
- Capital Market Operators are under pressure from strict penalties, ambiguous discretionary clauses, and unpredictable approvals.
- Regulators are empowered, but without proper oversight, this can breed mistrust or inefficiency.
- Startups & Foreign Investors may find the Act intimidating due to its vagueness and rigidity in several areas.
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