By Chukwuma Umeorah
With the recent passage of the Investment and Securities Bill (ISB) 2024 by the Senate, players in the Nigerian capital markets are analysing potential benefits and opportunities embedded in the legislation.
The bill, which currently awaits presidential assent, would repeal the Investment and Securities Act (ISA) 2007.
From bolstering investor protection to regulating previously unmonitored sectors, the bill, stakeholders insist, would position Nigeria as a competitive global financial hub.
Addressing regulatory gaps
The bill, among other things, is expected to fill existing regulatory gulf and harmonise operations on the capital markets.
The Vice Chairman of Highcap Securities, David Adonri, lauded the document for its comprehensive scope.
He noted that the leadership of the Securities and Exchange Commission (SEC) had once again demonstrated unwavering commitment in securing Nigeria’s capital market. Reflecting on his involvement in crafting the bill, Adonri said: “We market operators saw the deficiencies in the ISA 2007 and decided to effect the necessary amendments, which alongside the SEC, we packaged into the ISB 2024. It has brought in previously unregulated areas and introduced stiff penalties for contraventions.”
Particularly, the ISB’s measures to curb ponzi schemes and pyramid operations have garnered praise. “Those areas that were treated with kid gloves are now more regulated,” Adonri noted, emphasizing the inclusion of the commodities ecosystem and digital assets, areas previously outside regulatory oversight.
However, Adonri highlighted the dynamic and rapidly-changing nature of capital markets, cautioning that as the market evolves, periodic updates to the regulatory framework will be essential.
“But as of now, I think the ISB is all encompassing. It has brought in previously unregulated areas and also contains very stiff penalties for contravention.”
Boosting investor confidence
The ISB’s focus on investor protection is expected to restore confidence, particularly among foreign investors. Adonri recalled the pre-2008 dominance of foreign players in the Nigerian capital market, attributing it to robust regulatory foundations like the ISA 2007. He remarked, “Other than the adequacy of the ISA 2007, which had a lot of regulations and introduced institutions for adjudications in case of conflicts in the market that was not established in investment and securities tribunal (IST). And then before then, the Nigerian capital market had been internationalized, especially with the appropriation of the Exchange Control Act of 1962 and it’s replacement with the Nigerian Investment Promotion Council Act of 1995. They removed the capital control, and since then the market has been internationalized,” he stated, citing the impact of historic regulatory legislations. “What ISB has done is just to dot the Is and cross the Ts.”
Despite this, Adonri stressed that macroeconomic conditions remain critical in attracting investments. “Beyond the rules and regulations, socio-economic factors such as inflation, FX volatility, and sovereign risks overshadow the legal framework,” he observed.
He was corroborated by Olatunde Amolegbe, the Chief Executive Officer of Arthur Stephens Asset Management, who described the ISB as a step towards bridging the gap between innovation and regulation. “Regulators cannot stop markets from innovating, but they can ensure the gap between innovation and regulation is not too wide,” Amolegbe said.
Commodities sector transformation
One of the bill’s standout features for many is its regulatory framework for commodities exchanges and warehouse receipts.
Amolegbe highlighted the strategic importance of these provisions, citing the global significance of commodities markets like the Chicago Board of Exchange. This framework will allow traders to issue and trade warehouse receipts seamlessly, setting standardized prices across the value chain, “An active commodity exchange platform will help stabilize prices and provide clear pricing indications,” he stated.
“The codification of warehouse receipts is expected to enhance market efficiency, enabling seamless trading by stockbrokers and market participants. “This formalized approach will stabilize the prices of various commodities across the value chain and serve as a guide for traders,” Amolegbe explained.
Strengthening market integrity
The ISB’s commitment to market integrity extends to conflict resolution among operators and stricter penalties for financial malpractice. Amolegbe emphasized the need for robust adjudication mechanisms to resolve disputes promptly, noting, “Conflicts between market operators must be resolved in a timely manner to protect all parties involved.”
Similarly, the bill’s provisions for penalising fraudulent schemes aim to rebuild trust.
“The punishment for engaging in Ponzi or pyramid schemes will now be severe, ensuring investors take the Nigerian market seriously,” he added.
The ISB 2024 recently passed for third reading at the Senate lays emphasis on investor protection and is expected to attract both local and foreign investors. It introduces harsher penalties for financial fraud, including Ponzi schemes, with violators facing fines of at least N20 million or up to 10 years in prison. These measures aim to restore trust in the market, particularly among foreign investors who have previously been deterred by currency volatility and economic instability. “When investors know that risks are minimised, they will be more inclined to infuse funds into the market,” Senate President Godswill Akpabio had remarked during the public hearing.
In addition, the ISB expands the scope of the Investor Protection Fund (IPF) to cover losses arising from brokerage deregistration, a provision that previously only applied to bankruptcy or negligence cases. This move is designed to safeguard investors’ interests further and reduce ambiguities in market operations.
Nigeria’s determination to align its capital market regulations with global best practices. While stakeholders have widely praised the Bill, its implementation presents challenges. Ensuring compliance across the diverse landscape of Nigeria’s capital market will require significant effort from both regulators and market participants.
Market operators acknowledged these potential hurdles but expressed optimism about the bill’s long-term benefits. The SEC’s proactive approach, they believe as reflected in the ISB, positions Nigeria to navigate these challenges effectively. “With the right level of collaboration and enforcement, the market stands to gain immensely,” they affirmed.