The management of the Securities and Exchange Commission (SEC) has announced January 2026 as the commencement date for operators to comply with the Investment and Securities Act (ISA) 2025. Earlier this year, I attended a forum on ISA 2025 organised by the Association of Securities Dealing Houses of Nigeria (ASHON), where participants raised the question of whether a cooling-off period would be granted at the start of implementation. Although the SEC’s executive commissioner, operations, Bola Ajomale, did not provide a definitive answer, he encouraged operators to embrace self-reporting if they face any challenges.
He further assured attendees that the Commission would allow adequate time for operators to adjust and achieve full compliance. With the recent announcement of the January rollout, the SEC believes operators should now be ready for implementation. Another major issue highlighted at the forum was the introduction of risk-based supervision under ISA 2025.
The ISA 2025 initiative reflects a global evolution in financial regulation, in which regulators concentrate oversight on the highest-risk areas rather than applying uniform scrutiny across all market participants. While this approach promises greater efficiency and improved market resilience, its success will depend on careful calibration to avoid unintended consequences for Nigeria’s capital market operators. The SEC’s decision to begin 2026 with risk-based supervision is commendable; even with a five-year transition window, some operators may still encounter challenges.
At its core, risk-based supervision is a regulatory framework that prioritizes oversight based on the likelihood and potential impact of risks posed by market participants. Rather than inspecting every entity equally, the regulator identifies high-risk firms or activities for example, those with complex investment products, weak governance structures, or high exposure to market volatility and concentrates supervisory attention there.
We can liken risk-based supervision to a chemical reaction: regulators, like chemists, must mix the right amounts of scrutiny, support, and intervention. Too little attention to a risky component can cause instability; too much pressure on a low-risk operator can stifle growth. By analysing the “composition “of the market, its participants, products, and operational risks, SEC can deploy its supervisory resources more efficiently while maintaining systemic integrity.
At the basic level, SEC has finite manpower and budget. Focusing on higher-risk entities allows deeper inspections and more meaningful oversight. By identifying and addressing high risk behaviour proactively, SEC can prevent crises before they materialize, reducing systemic shocks. Lower-risk firms may experience lighter touch supervision, incentivising them to maintain sound practices while avoiding unnecessary regulatory burden. Risk-based supervision relies on continuous monitoring and reporting, promoting transparency and better understanding of market dynamics.
This supervision model is endorsed by the International Organisation of Securities Commissions (IOSCO) and has been adopted by capital market regulators in the United States, United Kingdom, Australia, Singapore, Canada, the Securities and Exchange Board of India (SEBI), the Jordan Securities Commission (JSC), the Financial Services Commission of Mauritius (FSC Mauritius), among others. However, its design, intensity, and scope vary across jurisdictions.
It is fair to describe this supervision model as a double-edged sword. Determining which firms or instruments fall into the high-risk category can be subjective, and misclassification may result in unnecessary scrutiny of low-risk entities or inadequate oversight of those that present greater threats. A robust risk-based framework also requires advanced IT systems, highly skilled personnel, and strong data-analytics capabilities. Because the model relies heavily on accurate, timely, and comprehensive information, weak reporting standards or incomplete disclosures could significantly compromise its effectiveness.
To implement risk-based supervision without disrupting market operators, the SEC must prioritise clear communication and well-defined guidelines. Firms need to understand how risk levels are assessed, what triggers heightened supervision, and how compliance expectations vary across risk categories. Transparency, indeed, builds trust.
The SEC should also strengthen its capacity by investing in data analytics, market intelligence, and skilled personnel who can accurately monitor, interpret, and act on risk indicators. Instead of rolling out sweeping reforms all at once, the Commission could pilot the risk-based approach in select sectors, refine the framework based on feedback, and then scale it gradually.
Moreover, regular engagement with securities dealers, issuing houses, fund managers, clearing houses, registrars, and other market participants is essential. Such consultations will help align supervisory priorities with market realities and minimise unintended disruptions. The effectiveness of risk-based supervision hinges on the quality of data available. The SEC must enhance reporting standards and deploy technology that enables real-time tracking of key risk indicators. Importantly, the supervision model should not be purely punitive, as that could create unintended consequences. Regulators should balance enforcement with guidance, supporting high-risk firms in resolving issues before sanctions become necessary.
There is no argument that the introduction of risk-based supervision under ISA 2025 represents a progressive shift in how SEC regulates Nigeria’s capital markets. It promises efficiency, targeted oversight, and enhanced market stability. However, like any chemical reaction, the right mix of oversight, guidance, and transparency is crucial. SEC must calibrate its approach carefully to avoid stifling low-risk operators while mitigating systemic risks.
If executed with care, risk-based supervision can boost investor confidence, foster a stronger compliance culture, and align Nigeria’s capital market with global best practices. The equation is simple: identify risk, manage it well, and the market flourishes; get it wrong, and even small missteps can unsettle the entire system. Let me pause.
