Pakistan working on a regulatory framework for digital assets

The SECP appears to be leaning towards a free-market approach

Pakistan’s Securities and Exchange Commission (SECP) is rumoured to be working on the introduction of a regulatory framework for cryptocurrencies. The entity released a document on 6 November that illustrated their position on the regulation of digital asset trading platforms, with the clarification that the paper “focuses exclusively on non-government or non-central bank issued crypto assets and not on central bank digital currencies.”

The SECP stated that it was open to receiving any comments and feedback on the paper and that the goal of the document was to provide a system for the operation and regulation of digital assets in the country as well as a clear path for designing and developing a robust regulatory regime.

The paper also provided two particular approaches for the regulation of the cryptocurrency industry within the country. The first proposal was to regulate and restrict new products with reference to existing regulations, which “may in some instances even entail outright banning”.

The SECP stated that if this approach will be applied to the country, innovators will be “obliged to adapt” to the prevailing regulations that are in Pakistan.

The second option available for crypto enthusiasts takes a more laissez-faire approach, allowing the industry to grow with a bit more leeway and lesser government or regulatory interference. Meanwhile, the SECP would shift its focus to developing its policies upon observing the country’s market behaviour.

The SECP admitted that the new document has been mostly prepared with the aforementioned second approach, the free market option, in mind. The entity assured readers that it would work towards maintaining consumer and investor protection, building a defence against money laundering and terrorism financing.

The paper also provides recommendations that were given by the Financial Action Task Force (FATF) on the topic, as well as relevant regulations in the US, Malaysia and Hong Kong that they are looking into.

The State Bank of Pakistan has clarified that cryptocurrency is not banned in the country. While the central bank’s lawyer informed the Sindh High Court that the bank released a warning about dealing in crypto, the entity did not ban it outright.

The central bank has previously expressed its reservations with cryptocurrencies, and has issued a circular last April 2018 for financial institutions “to refrain from processing, using, trading, holding, transferring value, promoting and investing in virtual currencies/tokens”.

Financial institutions were also discouraged from facilitating account holders in the transaction of virtual currency and ICO tokens. Any transaction made in this regard would be immediately flagged as a suspicious transaction and reported to the Financial Monitoring Unit.