Nigeria’s capital market is entering a new era with the official classification of cryptocurrencies and other virtual assets as securities. This monumental change aims to increase transparency, streamline regulations, and attract more investment into the country’s financial ecosystem.

President Bola Tinubu recently signed the Investments and Securities Act (ISA) 2024 into law, repealing the previous Investments and Securities Act No. 29 of 2007. This new law is a historic step, as it explicitly recognizes digital assets and virtual asset investment contracts as securities under Nigerian law. It also brings Virtual Asset Service Providers (VASPs), Digital Asset Operators (DAOPs), and Digital Asset Exchanges under the regulatory oversight of the Securities and Exchange Commission (SEC).

As a result, businesses dealing in digital assets will now be required to register with the SEC and comply with its regulations. This will curb fraudulent activities in the digital space, providing a solid foundation for trust, safety, and innovation in blockchain technologies. The new law aims to empower Nigeria’s financial markets, creating a more secure environment that fosters innovation and attracts both local and international investment.

A Bold Move Toward a Modernized Capital Market

Emomotimi Agama, Director-General of the SEC, described the ISA 2024 as a transformative law that will significantly boost investments in digital assets. He emphasized that this reform is essential for aligning Nigeria’s capital market with international best practices. “This Act is a key step toward building a dynamic, inclusive, and resilient capital market,” Agama stated. He added that the law will not only protect investors but also position Nigeria as an attractive destination for global investment.

Nigeria’s initial response to cryptocurrencies was one of caution. As digital currencies gained popularity around 2015, many Nigerians turned to cryptocurrencies such as Bitcoin as a hedge against inflation and the depreciating naira. This led Nigeria to become the second-largest holder of cryptocurrencies globally, after the United States. However, the surge in cryptocurrency use added pressure on the naira exchange rate. In response, the Central Bank of Nigeria (CBN) ordered banks to close all accounts linked to cryptocurrency transactions, aiming to curb the trade.

Despite these early challenges, the country’s stance on digital assets began to soften with the appointment of Olayemi Cardoso as CBN governor in mid-2023. President Tinubu’s administration signaled a shift toward a more open approach to digital assets, culminating in the passage of the ISA 2024.

A Comprehensive Approach to Investor Protection and Market Growth

The new Act introduces several provisions designed to enhance investor protection and drive economic growth. Among these are updated frameworks for financial market infrastructures, such as Central Counterparties, Clearing Houses, and Trade Depositories. Additionally, the law differentiates between Composite and Non-composite Exchanges. A Composite Exchange allows the trading of all types of securities and products, while a Non-composite Exchange focuses on specific categories of securities or products.

Furthermore, the ISA 2024 reaffirms the SEC’s role as the primary regulatory authority in Nigeria’s capital markets, enhancing its powers to ensure that Nigeria remains in compliance with global securities standards. The Act’s expanded regulatory scope will help Nigeria maintain its “Signatory A” status with the International Organization of Securities Commissions (IOSCO), which will further bolster confidence in the country’s financial markets.

Key Innovations and Legal Updates

The ISA 2024 introduces several innovations to make Nigeria’s capital market more competitive and transparent. Some of the key provisions include:

• Legal Entity Identifiers (LEIs): The mandatory use of LEIs by market participants will enhance transparency and reduce risks associated with anonymous transactions.

• Regulation of Commodities Exchanges: The Act introduces provisions for regulating Commodities Exchanges and Warehouse Receipts, which will support the development of Nigeria’s commodities market.

• Sub-National Fundraising: The Act lifts restrictions on sub-national entities (such as states and local governments), allowing them greater flexibility to raise funds from the capital markets. This will provide regional governments with more opportunities to finance infrastructure projects.

• Investor Protection: The Act strengthens enforcement against illegal investment schemes like Ponzi schemes and introduces severe penalties for promoters of such fraudulent activities.

• Regulatory Oversight of Digital Products: As digital products gain popularity among younger investors, the Act ensures that the regulatory framework keeps up with technological advances and emerging market trends.

A Vision for a Stable, Transparent, and Efficient Market

Industry leaders have praised the ISA 2024 for its potential to enhance market integrity, boost investor confidence, and expand investment opportunities. Oluropo Dada, President of the Chartered Institute of Stockbrokers (CIS), called the law a “testament to our collective commitment to advancing the capital market.” He believes the Act will modernize Nigeria’s financial markets, making them more efficient, transparent, and stable.

Sam Onukwue, Chairman of the Association of Securities Dealing Houses of Nigeria (ASHON), described the ISA 2024 as a “transformative” law for the capital markets. He noted that the Act will boost investor confidence, encourage diversification, and create new opportunities for market growth. Onukwue emphasized that the expanded scope of the law will help Nigeria move beyond traditional equities and fixed-income products.

A New Chapter for Nigeria’s Financial Future

With the signing of the ISA 2024 into law, Nigeria has taken a significant step toward modernizing its capital markets. The law’s recognition of digital assets as securities, along with its comprehensive regulatory reforms, will help create a more secure and transparent financial environment.

As Nigeria continues to expand its financial markets and enhance investor protection, the ISA 2024 will play a pivotal role in shaping the future of the country’s capital markets. By fostering innovation, safeguarding investors, and improving market integrity, the new law will help Nigeria attract greater investment, drive economic growth, and position itself as a key player in the global financial landscape.