#What changes have been made to banking regulations for virtual asset service providers in Pakistan?
The State Bank of Pakistan, the nation’s central bank, has recently taken a significant step forward by permitting banks to open accounts for licensed virtual asset service providers, often referred to as VASPs. This decision effectively reverses a 2018 ban that prohibited banks from engaging in activities related to virtual currencies and tokens. The revised framework aims to incorporate stringent compliance measures that will promote both innovation and investor security in the evolving digital asset landscape.
As part of this new regulatory environment, banks and other regulated entities are now allowed to onboard VASPs that have received licensing from the Pakistan Virtual Asset Regulatory Authority, or PVARA. There are clear stipulations governing this engagement, including the necessity for enhanced due diligence, ongoing monitoring of transactions, and the establishment of detailed customer risk profiles.
To ensure a clear separation between VASPs' financial operations and client funds, banks are required to set up separate Client Money Accounts. These accounts will be exclusively designated for managing customer funds related to VASP activities. Crucially, these accounts will be denominated in Pakistani Rupees and will have specific restrictions in place. They will not accrue interest, will not permit cash deposits or withdrawals, and cannot be utilized for credit or financing purposes.
What additional compliance measures are banks expected to follow?
In addition to the standard anti-money laundering (AML) and counter-financing of terrorism (CFT) regulations, banks must conduct an in-depth understanding of each VASP's business model, customer demographics, operational reach, and geographical exposure. They are also responsible for continuously updating their risk assessment frameworks, closely monitoring transactions, and promptly reporting any suspicious activities.
The framework allows entities holding a No Objection Certificate from PVARA to access limited-purpose accounts. However, banks can only extend full banking services after these entities obtain formal licensing. Moreover, banks are strictly forbidden from investing in, trading, or retaining virtual assets using their own funds or customer deposits, ensuring full accountability for regulatory compliance.
#How has the new legal framework for virtual assets shaped the market in Pakistan?
The introduction of this banking framework coincides with the enactment of the Virtual Assets Act of 2026 and the establishment of PVARA. This act is meant to safeguard investors, maintain market integrity, and encourage well-regulated innovation in the blockchain technology space. The legislation sets out clear licensing and supervisory practices for VASPs to enhance customer protection, compliance procedures, and more comprehensive oversight of virtual asset activities.
Pakistan’s move aims to balance regulations with innovation, offering support through mechanisms like sandboxes and virtual asset zones, which can foster the development of tokenized financial systems.
Despite these regulatory advancements, the previous restrictions from 2018 led to an escalation of crypto activities in underground markets. Following the ban, peer-to-peer crypto transactions in Pakistan sky-rocketed. Reports indicate that there was a more than 700% increase in such activities as individuals sought alternative channels beyond the rigid banking system. By early 2024, the majority of retail crypto transactions were no longer happening through formal banking avenues but via informal peer-to-peer channels or “Digital Hundi” networks.
The global crypto exchange Binance has gained substantial recognition in Pakistan, contributing to a user base that is estimated to exceed 20 million. This shift demonstrates how regulatory actions, rather than stifling demand, have often pushed significant activity into more informal and less regulated environments, highlighting a critical need for ongoing dialogue and evolution in regulatory frameworks surrounding virtual assets in Pakistan.