Banking & Finance
Banking & Finance
Nov 12, 2025
How The Investment & Securities Act 2025 Changes Contracting In Capital
Implications for Startups, VCs, and Financial Institutions
The Investment Securities Act, 2025( ISA 2025), signed into law by President Bola Ahmed Tinubu was enacted to repeal the Investment securities Act, 2007, which had served as the law that regulated the capital markets, protection of investors for almost two decades.
The new act aligns Nigeria’s securities law with global best practices, strengthens the legal and regulatory framework for investment and capital markets in Nigeria, reaffirms the authority of the Securities and Exchange Commission’s (SEC) as the highest regulator of Nigeria’s capital markets.
Key sectors affected include capital market operators, startups, venture capital funds, and financial institutions.
EXPANDED POWERS OF THE SECURITIES AND EXCHANGE COMMISSION (SEC)
The Investment Securities Act, 2025(ISA 2025), introduces several notable powers and provisions for the Securities and Exchange Commission’s (SEC):
Independence and Alignment with International Organization of Securities Commission (IOSCO): Section 1(4) emphasizes Securities and Exchange Commission’s (SEC) independence, separates its objectives and functions, and ensures compliance with international standards.
Expanded Market Oversight: Recognizes authority over derivatives, the National Savings Scheme, and the broader Nigerian commodities ecosystem.
Fraud and Scheme Enforcement: Strengthens the SEC’s ability to combat Ponzi schemes, unregistered investment schemes, and market manipulation.
Investigation and Data Access: Authorizes SEC to obtain telecom and electronic data for investigations.
Governance Interventions: SEC can appoint independent directors to boards under intervention, place directors on probation, audit records, freeze assets, and address unclaimed dividends.
Board Composition & Expertise: Clarifies chairman as non-executive, redefines the Director-General’s role, adds the National Pension Commission Director-General to the board, and sets minimum seniority levels for CBN and Ministry of Finance representatives.
KEY REFORMS
1. Investor protection and Disclosure:
The ISA criminalizes operations that are built to defraud investors in the country, allowing the SEC to penalize sponsors of fraudulent investment schemes like Ponzi schemes or pyramid schemes, prescribing severe penalties including imprisonment and hefty fines, for individuals and entities involved. (See SEC196, SEC 357 of ISA 2025)
2. Classification of Securities Exchanges
Section 27 of the ISA 2025 introduces a categorization of securities exchanges for ease of registration and operation. Securities exchanges are now categorized into:
Composite Exchanges: These exchanges allow the listing and trading of all categories of securities and products.
Non-composite Exchanges: These exchanges are limited to specific asset classes, such as commodity or derivatives markets.
3. Market Segmentation:
It ensures better market segmentation, encouraging specialization and improved regulatory oversight, making it easier for investors and companies to navigate the market.
4. Recognition of Investment Contracts as Securities
By classifying investment contracts as securities, the Act enhances investor protection through mandatory disclosures, compliance requirements, and regulatory scrutiny, as they are now governed by the same framework as other securities. (See SEC 357 of ISA 2025)
5. Introduction of Financial Market Infrastructure (FMI) Framework
The ISA 2025 introduces a comprehensive framework for the development and regulation of financial market infrastructures, including clearinghouses, settlement systems, and central securities depositories.
This framework aims to enhance the efficiency, stability, and transparency of financial markets by establishing clear standards and regulations for market infrastructures.
6. Expanded Ability for Collective Investment Schemes (CIS) to Raise Capital
Under the ISA 2025, Collective Investment Schemes, including Private Equity (PE) and Venture Capital (VC) funds, have expanded abilities to raise capital from the public. These funds can now offer their units or shares to the public, subject to SEC registration and oversight, broadening access to capital for investment funds and enhancing market liquidity. (See SEC 95(2) of ISA 2025 )
Contract Drafting Implications
1. Inclusion of SEC compliance warranties.
Parties must explicitly warrant compliance with ISA 2025 provisions in all investment, fundraising, and corporate finance agreements.
2.. Mandatory risk disclosure statements.
Investment agreements must outline risks clearly to protect investors and satisfy SEC disclosure rules.
3. Review of indemnity, confidentiality, and arbitration clauses.
Contracts must protect parties against liability for regulatory non-compliance and maintain confidentiality while complying with reporting requirements.
3. Cross-border investment clauses
Contracts must align with other laws like Nigeria Data Protection Act 2023 (NDPA) and Companies and Allied Matters Act 2020 (CAMA) for cross-border investments and data handling.
SPECIFIC CONTRACTS UPDATES
1. Subscription agreements / share purchase agreements: Add disclosure obligations, SEC compliance warranties, and investor protection clauses.
2. Venture capitals and Private Equity agreements: Revise representations, warranties, exit clauses, and risk disclosures.
3. Underwriting / advisory contracts: Incorporate SEC reporting triggers and indemnity clauses.
4. Loan syndications / convertible notes: Include regulatory compliance covenants, reporting triggers, and risk disclosure.
Stakeholder-Specific Impacts
1. Startups & SMEs: Investment terms now need SEC aligned clauses for fundraising, convertible notes and token based instruments and there must be compliance during fundraising, governance changes.
Startups & SMEs are advised to update term sheets and subscription agreements to reflect mandatory disclosures, engage legal counsel to ensure tokenized or digital fundraising instruments comply with ISA 2025 and review governance structures to align with SEC oversight.
2. Venture Capitals / Private Equity: There is now enhanced due diligence and stronger investor protection obligations.
The recommendations that could help venture capitals / private equities are
revision of investment agreements to include risk disclosures and compliance warranties, Audit exit clauses and representation/warranty language to align with SEC rules and ensure Collective Investment Schemes (CIS) raising capital are properly registered and monitored.
3. Financial Institutions: Financial institutions now have greater liability for compliance failures in capital market transactions, Increased reporting, auditing, and regulatory oversight.
So, it is advisable that they implement rigorous internal compliance checks for all capital market dealings, incorporate regulatory triggers in contracts such as loan syndications, underwriting, or advisory agreements and maintain real-time reporting mechanisms to SEC as required under ISA 2025.
4. Investors
The ISA 2025 gives investors Stronger rights and protections through mandatory disclosures and transparency in investment terms and corporate governance. So investors should ensure all investment agreements include updated disclosure and risk statements, use legal counsel to review exit rights, anti-fraud clauses, and investor protections and request periodic compliance reports from startups, SMEs, and funds.
5. Public Companies
The ISA 2025, allows for a revised corporate governance obligations also audit and reporting requirements are stricter under SEC oversight. Hence, public companies should update board structures and internal controls to meet ISA 2025 compliance, include SEC-mandated disclosure clauses in contracts and agreements and conduct periodic internal audits to anticipate regulatory inquiries.
Business Relevance
The ISA 2025 enhances investor confidence and cross-border financing. It encourages transparency in capital raising, requires startups and VCs to rethink legal documentation, and reduces the risk of contractual disputes. By embedding SEC compliance clauses, risk disclosures, and cross-border data protections, it strengthens enforceability, lowers regulatory risk, and positions Nigeria’s market as more investor-friendly and globally competitive.
Implications for Startups, VCs, and Financial Institutions
The Investment Securities Act, 2025( ISA 2025), signed into law by President Bola Ahmed Tinubu was enacted to repeal the Investment securities Act, 2007, which had served as the law that regulated the capital markets, protection of investors for almost two decades.
The new act aligns Nigeria’s securities law with global best practices, strengthens the legal and regulatory framework for investment and capital markets in Nigeria, reaffirms the authority of the Securities and Exchange Commission’s (SEC) as the highest regulator of Nigeria’s capital markets.
Key sectors affected include capital market operators, startups, venture capital funds, and financial institutions.
EXPANDED POWERS OF THE SECURITIES AND EXCHANGE COMMISSION (SEC)
The Investment Securities Act, 2025(ISA 2025), introduces several notable powers and provisions for the Securities and Exchange Commission’s (SEC):
Independence and Alignment with International Organization of Securities Commission (IOSCO): Section 1(4) emphasizes Securities and Exchange Commission’s (SEC) independence, separates its objectives and functions, and ensures compliance with international standards.
Expanded Market Oversight: Recognizes authority over derivatives, the National Savings Scheme, and the broader Nigerian commodities ecosystem.
Fraud and Scheme Enforcement: Strengthens the SEC’s ability to combat Ponzi schemes, unregistered investment schemes, and market manipulation.
Investigation and Data Access: Authorizes SEC to obtain telecom and electronic data for investigations.
Governance Interventions: SEC can appoint independent directors to boards under intervention, place directors on probation, audit records, freeze assets, and address unclaimed dividends.
Board Composition & Expertise: Clarifies chairman as non-executive, redefines the Director-General’s role, adds the National Pension Commission Director-General to the board, and sets minimum seniority levels for CBN and Ministry of Finance representatives.
KEY REFORMS
1. Investor protection and Disclosure:
The ISA criminalizes operations that are built to defraud investors in the country, allowing the SEC to penalize sponsors of fraudulent investment schemes like Ponzi schemes or pyramid schemes, prescribing severe penalties including imprisonment and hefty fines, for individuals and entities involved. (See SEC196, SEC 357 of ISA 2025)
2. Classification of Securities Exchanges
Section 27 of the ISA 2025 introduces a categorization of securities exchanges for ease of registration and operation. Securities exchanges are now categorized into:
Composite Exchanges: These exchanges allow the listing and trading of all categories of securities and products.
Non-composite Exchanges: These exchanges are limited to specific asset classes, such as commodity or derivatives markets.
3. Market Segmentation:
It ensures better market segmentation, encouraging specialization and improved regulatory oversight, making it easier for investors and companies to navigate the market.
4. Recognition of Investment Contracts as Securities
By classifying investment contracts as securities, the Act enhances investor protection through mandatory disclosures, compliance requirements, and regulatory scrutiny, as they are now governed by the same framework as other securities. (See SEC 357 of ISA 2025)
5. Introduction of Financial Market Infrastructure (FMI) Framework
The ISA 2025 introduces a comprehensive framework for the development and regulation of financial market infrastructures, including clearinghouses, settlement systems, and central securities depositories.
This framework aims to enhance the efficiency, stability, and transparency of financial markets by establishing clear standards and regulations for market infrastructures.
6. Expanded Ability for Collective Investment Schemes (CIS) to Raise Capital
Under the ISA 2025, Collective Investment Schemes, including Private Equity (PE) and Venture Capital (VC) funds, have expanded abilities to raise capital from the public. These funds can now offer their units or shares to the public, subject to SEC registration and oversight, broadening access to capital for investment funds and enhancing market liquidity. (See SEC 95(2) of ISA 2025 )
Contract Drafting Implications
1. Inclusion of SEC compliance warranties.
Parties must explicitly warrant compliance with ISA 2025 provisions in all investment, fundraising, and corporate finance agreements.
2.. Mandatory risk disclosure statements.
Investment agreements must outline risks clearly to protect investors and satisfy SEC disclosure rules.
3. Review of indemnity, confidentiality, and arbitration clauses.
Contracts must protect parties against liability for regulatory non-compliance and maintain confidentiality while complying with reporting requirements.
3. Cross-border investment clauses
Contracts must align with other laws like Nigeria Data Protection Act 2023 (NDPA) and Companies and Allied Matters Act 2020 (CAMA) for cross-border investments and data handling.
SPECIFIC CONTRACTS UPDATES
1. Subscription agreements / share purchase agreements: Add disclosure obligations, SEC compliance warranties, and investor protection clauses.
2. Venture capitals and Private Equity agreements: Revise representations, warranties, exit clauses, and risk disclosures.
3. Underwriting / advisory contracts: Incorporate SEC reporting triggers and indemnity clauses.
4. Loan syndications / convertible notes: Include regulatory compliance covenants, reporting triggers, and risk disclosure.
Stakeholder-Specific Impacts
1. Startups & SMEs: Investment terms now need SEC aligned clauses for fundraising, convertible notes and token based instruments and there must be compliance during fundraising, governance changes.
Startups & SMEs are advised to update term sheets and subscription agreements to reflect mandatory disclosures, engage legal counsel to ensure tokenized or digital fundraising instruments comply with ISA 2025 and review governance structures to align with SEC oversight.
2. Venture Capitals / Private Equity: There is now enhanced due diligence and stronger investor protection obligations.
The recommendations that could help venture capitals / private equities are
revision of investment agreements to include risk disclosures and compliance warranties, Audit exit clauses and representation/warranty language to align with SEC rules and ensure Collective Investment Schemes (CIS) raising capital are properly registered and monitored.
3. Financial Institutions: Financial institutions now have greater liability for compliance failures in capital market transactions, Increased reporting, auditing, and regulatory oversight.
So, it is advisable that they implement rigorous internal compliance checks for all capital market dealings, incorporate regulatory triggers in contracts such as loan syndications, underwriting, or advisory agreements and maintain real-time reporting mechanisms to SEC as required under ISA 2025.
4. Investors
The ISA 2025 gives investors Stronger rights and protections through mandatory disclosures and transparency in investment terms and corporate governance. So investors should ensure all investment agreements include updated disclosure and risk statements, use legal counsel to review exit rights, anti-fraud clauses, and investor protections and request periodic compliance reports from startups, SMEs, and funds.
5. Public Companies
The ISA 2025, allows for a revised corporate governance obligations also audit and reporting requirements are stricter under SEC oversight. Hence, public companies should update board structures and internal controls to meet ISA 2025 compliance, include SEC-mandated disclosure clauses in contracts and agreements and conduct periodic internal audits to anticipate regulatory inquiries.
Business Relevance
The ISA 2025 enhances investor confidence and cross-border financing. It encourages transparency in capital raising, requires startups and VCs to rethink legal documentation, and reduces the risk of contractual disputes. By embedding SEC compliance clauses, risk disclosures, and cross-border data protections, it strengthens enforceability, lowers regulatory risk, and positions Nigeria’s market as more investor-friendly and globally competitive.
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© 2024 Maverick Solicitors. All rights reserved.
DEVELOPED BY SHAKS STUDIOS
Site Map
© 2024 Maverick Solicitors. All rights reserved.
DEVELOPED BY SHAKS STUDIOS
Site Map
© 2024 Maverick Solicitors. All rights reserved.
DEVELOPED BY SHAKS STUDIOS
Site Map
© 2024 Maverick Solicitors. All rights reserved.
DEVELOPED BY SHAKS STUDIOS
