President Bola Tinubu recently signed the Investment and Securities Act 2024 (“ISA”) to effectively repeal and replace the Investments and Securities Act 2007 (“Old Act”). This move aims to strengthen Nigeria’s capital market climate by expanding the scope of the Securities and Exchanges Commission’s (“SEC”) powers, modernising market infrastructure, boosting investor confidence and aligning Nigeria’s financial markets with international best practices, particularly those of the International Organisation of Securities Commissions.
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A significant turning point arrived in late 2023 and 2024 with the lifting of the ban by the CBN and the introduction of new guidelines by the SEC. In December 2023, the CBN reversed its earlier directive, allowing banks to once again operate accounts for cryptocurrency service providers. This policy shift suggested a more pragmatic approach, acknowledging the ineffectiveness of a complete ban and the need to integrate the cryptocurrency sector into the formal financial system.
While the ISA comes with a lot of promise in the form of amendments and the introduction of new provisions, one of the biggest talking points is the ISA’s classification of digital assets, including cryptocurrencies, as securities under the regulatory purview of the SEC, thus providing a clearer legal framework for the sector. This formal legal recognition is crucial for enhancing investor protection and offering a springboard against which other service providers in the related digital infrastructure market can leverage the statutory recognition of digital assets within Nigeria’s digital asset market.
Nigeria’s crypto journey until the ISA
The Nigerian government’s stance on cryptocurrencies has undergone a notable evolution, reflecting a global trend of grappling with the implications of this emerging asset class. Initially, the government adopted a somewhat overly cautious approach, marked by warnings and a directive from the Central Bank of Nigeria.
(CBN) in 2017 instructing banks to cease all transactions involving cryptocurrencies. This early stance stemmed from concerns surrounding the potential for money laundering, terrorism financing, and the perceived threat to the stability of the national currency. This hardline position was further solidified in February 2021 when the CBN directed banks to close the accounts of individuals and entities involved in cryptocurrency transactions.
Despite this initial prohibition, the Nigerian government began to explore the possibility of regulating the sector as early as 2020. In September 2020, it took a significant step by recognizing virtual and digital assets as securities, signaling a potential pathway for regulation under existing securities laws. This was followed by the SEC’s issuance of “Rules on Issuance, Offering Platforms and Custody of Digital Assets” in May 20224. These rules, despite the ongoing CBN ban, represented the first comprehensive attempt to establish a regulatory framework for digital assets in Nigeria, indicating a divergence in approach between the two key financial regulatory bodies.
A significant turning point arrived in late 2023 and 2024 with the lifting of the ban by the CBN and the introduction of new guidelines by the SEC. In December 2023, the CBN reversed its earlier directive, allowing banks to once again operate accounts for cryptocurrency service providers. This policy shift suggested a more pragmatic approach, acknowledging the ineffectiveness of a complete ban and the need to integrate the cryptocurrency sector into the formal financial system. Subsequently, in January 2024, the CBN released initial guidelines outlining the conditions under which banks could open accounts for cryptocurrency-related businesses, including the implementation of stringent anti-money laundering (AML) and know-your-customer(KYC) measures. The SEC subsequently granted ‘approvals-in-principle’ in August 2024 to exchanges such as Busha and Quidax, enabling them to pilot their operations under the SEC’s Accelerated Regulatory Incubation Programme (ARIP).
What does ISA say about virtual assets?
Under the new regime, the ISA has now classified “virtual assets” as “securities”, thus ensuring that digital assets will now be subject to the same regulatory requirements as traditional securities, such as stocks and bonds. Consequently, entities involved in virtual assets will now be obligated to comply with provisions related to the registration of securities, disclosure obligations, and adherence to anti-fraud and market manipulation regulations. The Act also mandates the registration of all securities exchanges, whether or not they directly issue securities to the public. This ensures that any entity offering virtual assets must register them with the SEC before they can be traded or sold in Nigeria. The reinforced powers of the SEC, as the apex regulator of the securities market under Section 3, are crucial for the oversight of this newly regulated asset class. This includes the authority to issue specific rules and guidelines tailored to the unique characteristics of virtual assets, monitor market activities, and enforce compliance, thereby aiming to enhance invest or protection within the digital asset ecosystem.
What does this mean for stakeholders?
The ISA represents a landmark shift in Nigeria’s financial regulatory landscape by formally recognising digital assets, including cryptocurrencies, as securities under the oversight of the Securities and Exchange Commission (SEC). This move provides much- needed legal clarity, enhancing investor protection, boosting market confidence, and legitimizing crypto businesses that previously operated in a regulatory grey area.
With the SEC now empowered to oversee digital assets, stakeholders (including exchanges, fintech firms, and investors) can operate within a structured framework, fostering innovation while ensuring compliance with anti-fraud and AML/KYC measures. The ISA not only aligns Nigeria with global financial standards but also positions the country as a forward-thinking hub for blockchain and digital asset adoption in Africa, despite the compliance challenges it may introduce for market participants.
As the SEC begins implementing its oversight powers under the ISA, stakeholders should anticipate further guidance and potential regulatory sandboxes to facilitate innovation in the digital asset space.
About authors
For further insights or advice on the Investment and Securities Act 2024 and its implications for digital assets, readers may contact the Technology, Media & Telecommunications (TMT) Team at Advocaat Law Practice, which specializes in fintech, blockchain, and securities regulation.
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