The Securities and Exchange Commission of Pakistan (SECP) has agreed to issue a regulatory structure to regulate the mistreatment of virtual currencies in Pakistan with international market, worth more than EUR 7 billion for the regulation and tracking of digital and virtual assets, including crypto-assets too.
A paper on the regulation of Digital Asset Trading Platforms in Pakistan has been made by the SECP in this regard.
This is the first time any of the regulatory bodies in Pakistan have taken the initiative to control digital / virtual properties.
Even though there is still no agreement on the concept of Digital Properties, the shared aims among all of them include:
- Digital / Cryptocurrency; digital tokens/assets; Tokens for Utilities
- Protection Tokens, either backed by real assets or Distributed Ledger Technology Cryptography.
The purpose of the SECP under the regulatory structure is to promote responsible and balanced financial inclusion activities and the development of technical innovation; ensure the safety and efficiency of the capital market and its institutions; ensure the security of customers and investors; reduce regulatory arbitration opportunities; tackle circumvention of the laws and regulations of exchange control; illegal financial transactions, money laundering and terrorist funding.
Digital assets, also known as virtual assets and crypto assets, are the beginning of a new age of Digital Finance, according to the SECP. They require creative regulatory steps and approaches from regulators around the globe. Also, by initiating a new age that reinvents regulatory regime/measures will be only possible by this.
While the full scale of virtual currencies mistreatment is not known, the market value of virtual currencies has been estimated to surpass EUR 7 billion globally, SECP said.
The SECP stated that a policy and regulatory response to Digital Assets in Pakistan needs to be established, guided by the following:
- Digital assets are a type of innovation that may affect the country’s financial sector.
- In the new regulatory environment, digital assets are unsuitable
- Digital assets can establish regulatory arbitrage circumstances while posing risks;
- Growing interest in Digital Assets, its investment and in its participation.
The SECP has also addressed the available approaches to digital asset regulation.
According to current laws, new products may be regulated and limited, and may even require outright banning in some instances. This strategy allows innovators to conform to the atmosphere of regulatory climate.
The second is based on the ‘let-things-happen’ approach, defined by the Commodity Futures Trading Commission (CFTC) as the ‘do-not-harm’ approach, where the financial sector is considered competitive and there is a strong focus on the need to modernize. The ‘do-not-harm’ strategy is highly conscious of not allowing progress to be stifled by over-regulation and encourages finding the optimum balance between innovation, the related risks and the greater security of the financial system.
The two forms of digital assets have also been clarified by the SECP, i.e. Token for Utility and Token for Security.
- Token for Utility:
These tokens are designed to be used, typically within the application/platform for a specific purpose. For transactions inside the platform, the most common use of a utility token is a payment option. Medipedia Platform, for example, is a blockchain-based healthcare startup targeted at Medical Tourists. The platform has provided tokens for services, i.e. Under the Medipedia network, MEP tokens can be used to pay for healthcare services.
- Token for Security:
The token provided by an initial security offering with a certain investment aspect is known as a security token. These tokens bear a greater resemblance to financial instruments than to money. Security tokens should be known as rights-providing properties, such as ownership, the right to share in future income or cash flows, or the payment of a particular sum of money (e.g. dividends).