Here’s what to know as Senate backs capital market reform bill

Just recently, the Senate of the Federal Republic of Nigeria passed the Investments and Securities Bill (ISB) 2024. The market reform bill, which is a major boost to the operations of the Securities and Exchange Commission (SEC) and the Nigerian capital market is expected to attract investment and foster capital formation.

The bill co-sponsored by Bamidele Opeyemi, the Senate leader and Osita Izunaso, chairman, Senate committee on the capital market, seeks to repeal the Investments and Securities Act, 2007 to align the capital market with current global realities.

Globally, financial regulators have made major changes in their regulatory instruments to address some of the obvious gaps that contributed to the global economic disruption in the past. Such global shifts and other current trends in capital markets regulation made it imperative to make major improvements to align Nigeria’s market with international standards.

The ISB 2024 was read for the third time on Wednesday, December 4, 2024 after the Senate considered the report of its committee on capital markets, and the clauses therein, with the lawmakers voting in support of the proposed law. The bill would be transmitted to President Bola Tinubu for his assent.

The ISB is a market-inspired bill because inputs were received from all segments of the Nigerian capital market – SEC, commodities exchanges, the central counterparties, capital market operators and trade associations, Chartered Institute of Stockbrokers, capital market professionals such as legal practitioners as well as shareholders associations.

The proposed legislation, expected to usher in a reformed capital market framework by 2025, aims to regulate the market to ensure robust capital formation, safeguard investors, maintain a fair and transparent market, and reduce systemic risk.

Also, the legislation proposes stiffer penalties, registration/regulation of exchanges and financial market infrastructures; regulation of new businesses; mergers, takeovers and corporate restructurings; collective investment schemes; commodities ecosystem; investors protection fund; among others.

Also, the Investments and Securities Bill is meant to repeal the Securities and Exchange Commission Act. The bill, which also repeals the Investments and Securities Act, No. 29 of 2007 (ISA), introduces new provisions that empowers the Securities and Exchange Commission (SEC) to collaborate with other regulatory bodies in the financial sector to manage and mitigate systemic risks as it confers new investigative and enforcement powers on the apex regulator, SEC, to effectively regulate the Nigerian capital market.

The bill envisages a regulatory framework for digital currencies and fintech activities, including the disposition of blockchain cryptocurrency transactions to support the integration of innovative technologies within the scope of the capital market.

Notably, the bill empowers the Securities and Exchange Commission (SEC) to protect investors, adequately regulate the market to reduce systemic risks, maintain a fair, efficient and transparent market as well as provide for more stringent punishment for operators of Ponzi schemes.

It also introduces stiffer sanctions in the form of increased fines and jail terms, which are commensurate with the severity of offences and also serve as deterrence to potential future offenders.

For instance, a jail term of not less than 10 years has been provided to address the menace of Ponzi schemes and illegal investment schemes that have caused heartache for thousands of Nigerians who have been victims of such scams. Other offences such as market manipulation, insider trading and false statements in prospectuses, among others, are also subject to severe punishment.

Read also: Senate passes capital market reform bill

The bill also ensures the diversification of the Nigerian economy away from a mono-product economy through the strengthening of the Nigerian commodities ecosystem, with the trading of warehouse receipts and commodities contracts on the commodities exchanges.

The bill also contains a legal framework for registration and regulation of new types of critical market infrastructures such as central counterparties, which will be responsible for managing the risks emanating from transactions in derivatives and other financial instruments, thereby ensuring the safety and integrity of Nigeria’s markets and boosting investors’ confidence.

Other areas the bill addresses include alternative trading systems, inclusion of National Pensions Commission (PenCom) as part of the board of the SEC, deletion of the provisions on merger control in the Investments and Securities Act and amendment of the criteria of borrowing by sub-nationals and strengthening and enforcement powers of the SEC in line with the requirement of the International Organisation of Securities Commissions.

The bill will generally revitalise the Nigerian capital market as it introduces regulation of new businesses, products and services that will deepen the market while equipping the apex regulator – the SEC — with appropriate powers to protect the market and enforce the provisions of the bill.

A notable amendment in the Bill would allow the Investor Protection Fund (IPF), established by securities exchanges, to cover investor losses linked to the deregistration of brokerage firms, extending beyond the current coverage of bankruptcy or negligence cases.

The bill also introduces the framework for regulation of new products including financial and commodities derivatives and financial market infrastructures, which are expected to lead to increased activities, and thus deepen the Nigerian capital market. The ISB 2024 also introduces regulatory frameworks for Commodity Exchanges and Warehouse Receipts, essential steps for developing Nigeria’s commodities sector.

While announcing the passage of the Bill, President of the Senate, Godswill Akpabio said a lot of people would be happy to infuse funds into the capital market when they know a lot of the risk has been minimised.

He thereafter referred the bill to the Senate Committee on Capital Market for further legislative actions.

During the consideration of the report on the Bill from the committee on Capital Market, Tahir Monguno, Senate Chief Whip, stated that it will protect investors and eliminate fraudulent dealings in the capital market.

Senator Osita Izunaso, Chairman, Senate Committee on Capital Market said the bill sought to repeal the Investments and Securities Act, of 2007 and enact the Investments and Securities Act, 2024 stating that the ISB is capable of transforming the capital market, encourage the influx of foreign investors as well as boost investors’ confidence, among others.

Izunaso said: “The Bill seeks to repeal the existing Investments and Securities Act 2007, and to establish a new market infrastructure and wide-ranging system of regulation of investments and securities businesses in Nigeria especially in the areas of derivatives, systematic risk management, financial market infrastructure and Ponzi scheme and platforms.

He said, “It was meant to establish the Securities and Exchange Commission as the apex regulatory authority for the Nigerian Capital Market. It will be a regulation of the Market to ensure capital formation, the protection of investors, maintenance of fair, efficient and transparent market, and reduction of systemic risk.”

Izunaso further said the main objective of the bill was to enact legislation that aligned with global dynamics as they relate to the regulation of capital market through the provision of an innovative regulatory framework.

“It will protect the integrity of the security market against all forms of market abuse and insider dealing. It will prevent unauthorised, illegal, unlawful, fraudulent and unfair trade practices, relating to securities and investments.”

He said that the overriding purpose of the proposed legislation was to strengthen the capacity of the Commission for the effective performance of its statutory mandate as well as reposition that vital sector of the economy for national economic transformation.

The bill was also supported by Senators Isa Jibrin (APC-Kogi) and Senator Adetokunbo Abiru (APC-Lagos).

Senators Jibrin said, “We have been having problems in terms of definite assignments that the Securities and Exchange Commission (SEC) is supposed to carry to ensure that the Nigerian Capital Market functions effectively. This amendment is very important to ensure that SEC does its job in line with the global best practice.”

Emomotimi Agama, Director General, SEC said the Bill is pushing for harsher penalties on Ponzi scheme operators through the proposed Investments and Securities Bill (ISB) 2024, which mandates a minimum fine of N20 million or up to 10 years in prison, or both.

Agama explained that the bill explicitly prohibits Ponzi and pyramid schemes, fortifying protections for investors against illegal fund managers adding that it aims to shield Nigerian investors from fraudulent schemes and enhance the capital market’s global competitiveness.

Agama also noted the need for updates to the existing ISB 2007 to reduce ambiguities and align Nigeria’s capital market regulations with international standards.

“This bill’s passage would be pivotal in setting Nigeria on the path to a world-class capital market,” he stated, underscoring the role of a robust capital market in economic diversification.