The National Assembly has passed the Investment and Securities Bill, which includes provisions for possible jail sentences for those who promote Ponzi schemes in Nigeria. Oluwakemi Abimbola examines the implications of the bill on investment when it is signed into law.
The Investment and Securities Service Bill 2023 finally cleared the last hurdle of the National Assembly when the Senate passed it on 29 March. The bill, expected to aid the functioning of the capital market and facilitate ongoing economic diversification, had already been passed by the House of Representatives in December and now awaits presidential assent to become law. At the plenary, Senate President Ahmad Lawan said the legislation will protect investors, adequately regulate the market, reduce systemic risks, and impose stricter punishments on operators of Ponzi schemes. He explained, “The bill to repeal the Investments and Securities Act 2007 (Act No. 29 2007) and enact the Investments and Securities Bill 2023 to service the SEC as the apex regulatory authority for the Nigerian capital market, ensure capital formation, protect investors, maintain a fair, efficient and transparent market, reduce systemic risk, and address related matters is hereby passed.”
When the House of Representatives approved the bill, Chairman of the House Committee on Capital Markets and Institutions Babangida Ibrahim said the ISB 2023 could transform the capital market, attract foreign investors, and boost investor confidence. He noted that the bill seeks to repeal the 2007 Act and establish a new market infrastructure with a wide‑ranging regulatory system for investments and securities businesses, especially in derivatives, systematic risk management, financial market infrastructure, and Ponzi‑scheme regulation.
One of the bill’s key developments is the prohibition of Ponzi and pyramid schemes, which have caused billions of naira in losses and eroded confidence in Nigeria’s investment climate. The legislation bans such schemes and prescribes a minimum ten‑year jail term for promoters. Ponzi schemes, also known as pyramid sales schemes, lure investors with promises of high returns, paying earlier investors with funds from newer ones until the system becomes unsustainable. According to the Securities and Exchange Commission, three million Nigerians lost N18 billion when the MMM scheme collapsed in 2016. By 2022, Nigerians had lost over N300 billion in Ponzi schemes over five years, according to a Norrenberger Financial Investments report. Promoters of Ovaioza Farm Produce Storage Business Limited are currently facing prosecution for defrauding victims of up to N2 billion through an unregistered collective investment scheme.
Chief Executive Officer of Enterprise Stockbrokers, Rotimi Fakayejo, welcomed the prohibition as long overdue. He recalled the MMM scandal and warned that such schemes discourage future investment: “People who invest in the wrong window may never invest again. Some are greedy, some are ignorant; the latter may never enter a viable, regulated investment window again. Every economy needs investment to keep money circulating through profitable channels.” Fakayejo argued that both participants and promoters should be punished, with harsher penalties for the latter. He suggested that, in addition to the ten‑year jail term, asset forfeiture and fines of 10‑20 percent of the amount collected from victims would be appropriate.
In contrast, Boniface Okezie, National Chairman of the Progressives Shareholders Association of Nigeria, argued that Ponzi schemes have been embraced elsewhere and questioned the relevance of copying foreign laws for Nigeria. He doubted that outgoing President Muhammadu Buhari would assent to the bill before his term ends on 29 May, noting the president’s past delays in signing legislation.
The Director‑General of the Securities and Exchange Commission, Lamido Yuguda, highlighted another bill provision: the inclusion of the National Pension Commission on the SEC board to enhance collaboration and encourage greater investment of pension funds in capital‑market products. Stakeholders welcomed this, noting the significant role pension funds already play. Fakayejo called the move “long overdue,” emphasizing that pension funds are major investors in bonds, equities, and commercial papers and should have a say in market regulation. Okezie agreed, stressing that pension funds must be mindful of where they invest to avoid trapping retirees’ money.
While the bill aims to boost investor confidence and attract foreign investment, Fakayejo pointed out that the unstable exchange rate remains a major deterrent for foreign portfolio investors. “I don’t see anything in the bill that is a plus for foreign portfolio investment. The instability of the naira is the basic reason they have left,” he said. Professor Olawale Ajai of Lagos Business School concurred, noting that insecurity and an opaque foreign‑exchange regime have hampered the business environment despite recent reforms.
Other notable features of the bill include expanding the categories of issuers to facilitate innovations such as crowd‑funding, and allowing “commercial and investment business activities” subject to SEC approval and stipulated controls. The definition of a Collective Investment Scheme is broadened to include privately offered schemes to qualified investors, and a new part regulates commodity exchanges and warehouse receipts, which the SEC DG described as essential for developing the commodities ecosystem.
A new section on systemic‑risk management introduces mechanisms for monitoring, managing, and mitigating systemic risk in the capital market; arrangements for information sharing with other regulators; and the use of legal‑entity identifiers for proper risk monitoring. The bill also classifies securities exchanges into composite exchanges—where all categories of securities and products can be listed and traded—and non‑composite exchanges, which focus on a single type of security or product. Duties and responsibilities of exchanges are expanded, revocation conditions are clarified, and new provisions address financial‑market infrastructures such as central counterparties, clearing houses, and trade depositories.
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