Menu

The Investment and Securities Act 2025 expands the SEC’s oversight functions, mandates the registration of all securities issued through crowdfunding portals, and introduces stricter pre-clearance and disclosure requirements for crowdfunding offers.

Introduction

The Investment and Securities Act (ISA) 2025 establishes a legal framework that empowers the Securities and Exchange Commission (SEC) to regulate emerging forms of capital raising, which include crowdfunding. The SEC exercised this power through its Rules on Crowdfunding, issued on 21 January 2021, and according to section 3 of ISA 2025. These rules govern who can raise funds, how much can be raised, investor protections, and platform registration.

Crowdfunding is recognised under the SEC Rules as the process of raising capital from the public to fund a project or business through an online platform in exchange for securities (e.g., shares or debt instruments). It typically involves startups and small businesses seeking relatively small contributions from many investors. Crowdfunding serves as a critical alternative financing source for startups and Micro, Small, and Medium Enterprises (MSMEs) that may not qualify for bank loans or large-scale institutional funding. It lowers the entry barrier to capital markets, encourages innovation, and promotes financial inclusion. 

The SEC is the principal regulatory authority for crowdfunding in Nigeria. It is responsible for registering and licensing crowdfunding platforms, approving offer documents, monitoring issuer disclosures, and enforcing fundraising limits ranging from N50 million to N100 million annually, depending on the size of the issuer. For commodities investment platforms, the maximum amount to be raised is not to exceed N1 billion, although SEC may upon application approve a higher threshold. The SEC also protects retail investors by capping their total annual investment at 10% of their net annual income and imposes sanctions on unregistered platforms or misleading offers in accordance with the ISA 2025. 

Regulatory Changes

The ISA 2025 introduced significant changes in the regulation of crowdfunding in Nigeria, providing a comprehensive legal framework that strengthens compliance, investor protection, and market integrity. The analysis below portrays some of the key changes introduced by the ISA 2025.
 
Mandatory Registration of Securities Traded on Crowdfunding Platforms: Under the SEC Rules, only Crowdfunding Intermediaries – which are entities or corporations registered to operate a crowdfunding portal and facilitate the offering or sale of securities or investment instruments, and who are required to maintain a minimum paid-up capital of N100 million – are mandated to register and be licenced by the SEC as a requirement for their operations. However, the ISA 2025 has made registration of all securities issued pursuant to the Act, mandatory. The implication is that for a fundraiser to offer to sell any investment instrument on a crowdfunding platform, it must be registered with the SEC and obtain a certificate of registration. 

Stricter Pre-Clearance and Disclosure Requirements for Crowdfunding Offer: Every crowdfunding offer must now receive pre-clearance from the SEC before solicitation. Fundraisers must disclose all material risks, financial information, use of proceeds, and project details to protect investors. Under the SEC Rules, a Crowdfunding Intermediary was required to submit the offering materials received from a fundraiser to the SEC at the time of publication of such material on its crowdfunding portal. Importantly, under the ISA 2025, no such materials can be posted without obtaining prior consent from the SEC. This imposes a proactive duty of transparency on fundraisers, which is geared towards investors’ protection. Violations attract severe penalties, including sanctions for false or misleading statements, which were absent under the repealed Act. 

Governance Safeguards and Accountability: The SEC Rules impose strong governance and accountability measures on Crowdfunding Intermediaries and fundraisers to protect investors. Crowdfunding Intermediaries must act in the best interest of investors, avoid conflicts of interest, and disclose any related-party transactions. They are also prohibited from providing financial assistance to fundraisers or having financial interests in fundraising campaigns on their platform. 

SEC Rules also require quarterly reporting, proper recordkeeping, and complaint-handling mechanisms. Non-compliance attracts regulatory sanctions, including fines, licence suspension, and relevant officer liability. 

Who Can Raise Funds Through Crowdfunding?

The ISA 2025 and SEC Rules, permit only qualified fundraisers to raise funds through a crowdfunding portal. Eligible fundraisers include:

a)    Micro, Small and Medium Enterprises: They must be incorporated in Nigeria as a company with a minimum of two years’ operating track record; or where less than two years in operation, must have a strong technical partner or sponsor with a verifiable track record.

b)    Startups: Early-stage companies may raise funds subject to enhanced due diligence by the Crowdfunding Intermediary and compliance with disclosure requirements.

c)    Cooperative Societies and Community-Based Enterprises: May be allowed subject to SEC approval and portal operator assessment.

Prohibited Fundraisers

Public companies, complex or highly regulated businesses (e.g., oil & gas exploration, securities firms, banking, insurance, etc.), entities with no clear business plan or revenue model, and companies seeking to fund illegal or unethical activities are not eligible to raise funds through crowdfunding under the ISA 2025. 

Investor Protection Measures

Under the SEC Rules, retail investors are limited to investing no more than 10% of their annual income in any calendar year across all crowdfunding platforms. In contrast, high-net-worth individuals and qualified institutional investors face no investment limit, as they are presumed to possess the expertise and capacity to manage investment risks. These limits are designed to protect less sophisticated investors while allowing more experienced entities greater flexibility. 

Other investors protection measures contained in the ISA 2025 and the SEC Rules include: 

o    Crowdfunding intermediaries must prominently display a risk warning on the homepage, each fundraiser’s subscription page, and all investment application forms.
o    The warning must inform investors that crowdfunding is risky, involves speculative ventures, may result in total loss of investment, and that investors should seek independent advice before investing.
o    Investors must be made aware that their investment limits are monitored by the crowdfunding intermediary to ensure compliance with SEC Rules.
o    Every investor must sign a risk acknowledgement form confirming their understanding of the risks, including over-valuation, inferior share rights, illiquidity, and lack of traditional investor protections.
o    Investors must acknowledge a mandatory lock-in period of at least one year and that they may never be able to sell their securities.
o    The fundraiser must also obtain a signed acknowledgement form from the investor confirming they have read the risk warning, are within investment limits, and can bear a total loss without undue hardship. 

Fundraising Limits and Permissible Securities 

Under the SEC Rules, fundraisers may raise up to N50 million for micro enterprises, N70 million for small enterprises, and N100 million for medium enterprises within a 12-month period, based on their annual turnover. 

Furthermore, under the SEC Rules, fundraisers may issue the following permissible securities:  ordinary shares, plain debt instruments, and simple investment contracts. 

Offences, Penalties, and Legal Safeguards

A Crowdfunding Intermediary that violates the SEC Rules is liable to a one-off minimum fine of N100,000, a daily penalty of N5,000 for each day the breach continues, and bears responsibility for any resulting loss of investor funds. Issuing or offering securities to the public without SEC registration is an offence punishable by a fine of at least 50% of the value of the securities, and for directors or officers, 10% of the value or a minimum of five years’ imprisonment upon conviction.

Conclusion and Recommendations

Indeed, the ISA 2025 significantly strengthens the legal and regulatory framework for crowdfunding in Nigeria. It expands the SEC’s oversight functions, mandates the registration of all securities issued through crowdfunding portals, and introduces stricter pre-clearance and disclosure requirements for crowdfunding offers. When combined with the SEC Rules, it provides a more robust structure for compliance, transparency, and investor protection, especially in an economic climate where startups and MSMEs are seeking alternative funding sources due to reduced credit access and inflationary pressures in Nigeria’s capital markets.

Considering the above, it is recommended that the SEC should enhance public awareness of the ISA 2025 crowdfunding requirements, introduce a fast-track approval process for MSMEs, and strengthen compliance monitoring of registered platforms. For fundraisers, they must now ensure full registration and disclosure compliance, avoid unapproved offerings, and maintain transparency with investors. 

Furthermore, it is recommended that Crowdfunding Intermediaries should implement strong governance and risk controls, monitor investor limits, obtain SEC clearance for all offers, and strictly adhere to rules governing commodities investment platforms, including the N1 billion fundraising cap. Finally, investors should only invest through SEC-registered crowdfunding platforms, stay within their investment limits, understand and acknowledge the risks, review all disclosures carefully, and seek independent advice where needed.

Detail Commercial Solicitors is distinct as Nigeria’s first commercial solicitor firm to specialise exclusively in non-courtroom practice. Based in Lagos, Nigeria’s business capital, DETAIL is totally committed to its clients’ business objectives and reputed for dealing with the minutiae. Email: info@detailsolicitors.com.