What to know as Senate passes capital market reforms bill

The Senate of the Federal Republic of Nigeria has passed the Investments and Securities Bill (ISB) 2024. The market reforms 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 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.

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.

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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.

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 the 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.

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.

Godswill Akpabio, Senate president, 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 the bill would protect investors and eliminate fraudulent dealings in the capital market.

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, encouraging the influx of foreign investors and boosting investors’ confidence, among others.

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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.”

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.”