Dr. Ikramul Haq & Abdul Rauf Shakoori
The federal government’s announcement of the Pakistan Crypto Council (PCC) marks a significant step in the country’s evolving approach to digital assets. Formally established under the directives of Prime Minister, Shehbaz Sharif, the Council has been tasked with developing a regulatory and operational framework that integrates cryptocurrencies into the formal financial system to mitigate the risks of misuse.
The parliamentary briefings revealed that the government neither seeks to promote nor to discourage cryptocurrency but rather to bring it within a lawful, structured mechanism to ensure transparency, protect consumers, and prevent illicit flows. The initiative reflects an acknowledgment that crypto assets have reached a level of economic relevance that demands formal oversight. The Council’s mandate overseen by a special assistant to the prime minister signals Pakistan’s willingness to adapt to a rapidly digitizing global economy and to align its financial governance with international standards. This policy shift comes at a time when major financial jurisdictions are tightening their supervisory regimes on virtual assets.
The United States, through the coordinated efforts of the New York Department of Financial Services (NYDFS), the Securities and Exchange Commission (SEC), and the Office of the Comptroller of the Currency (OCC), has issued detailed guidance to strengthen custodial safeguards, disclosure obligations, and the permissible scope of crypto-related banking activities. These developments are not isolated, but they are part of a global recalibration toward defining clear accountability in the digital asset ecosystem.
The U.S. approach, grounded in consumer protection and systemic risk management, offers a regulatory model that countries like Pakistan may examine closely to design their own frameworks. In September 2025, the NYDFS updated its guidance on virtual currency custodial structures, establishing explicit standards for how financial institutions should segregate, record, and manage customer assets. The guidance emphasizes that the beneficial ownership of digital assets must always remain with the customer, even in the event of insolvency.
Licensed entities are now required to maintain separate accounting systems for customer assets, ensuring that digital holdings are never commingled with the institution’s corporate funds. Moreover, custodians may not deploy customer assets for proprietary use, such as collateralizing loans or internal liquidity operations. These safeguards are designed to prevent the type of contagion and loss of consumer funds witnessed in several high-profile crypto collapses in recent years.
A notable addition in the NYDFS update concerns the regulation of sub-custodians, third-party entities engaged by primary custodians to hold customer assets. Institutions must now conduct due diligence on such sub-custodians, provide detailed documentation to the NYDFS, and seek prior approval for material changes to their custodial structures.
Sub-custodians themselves must either be licensed by the NYDFS or subject to a regulatory regime deemed substantially equivalent. This structure creates a chain of accountability designed to eliminate opacity in asset handling and reinforce trust in custody services, which are foundational to institutional participation in digital finance.
Parallel to this, the SEC’s Division of Investment Management issued a no-action letter clarifying that state-chartered trust companies may qualify as “qualified custodians” under the Investment Advisers Act, 1940 and Investment Company Act of 1940, provided they meet specific conditions. These include state authorization for digital asset custody, comprehensive internal controls for safeguarding private keys and cybersecurity, and full disclosure of associated risks to clients. This position expands the scope for regulated entities to engage in digital asset custody, while ensuring that investor protection remains the central priority.
The statements issued by the NYDFS and SEC collectively demonstrate a developing regulatory framework in USA, reflecting efforts to harmonize financial innovation with the obligations of fiduciary duty. Further reinforcing this trend, the NYDFS also released guidance urging banks to incorporate blockchain analytics into their compliance and risk management systems.
By using blockchain analytics tools to trace and monitor virtual currency transactions, institutions can identify suspicious activity, assess counterparty risk, and verify sources of funds. This approach aligns with broader anti-money laundering (AML) and countering the financing of terrorism (CFT) objectives, which remain key areas of concern globally. The message from U.S. regulators is clear that responsible innovation in digital assets must be grounded in transparency, accountability, and technological rigor.
The Federal Banking Agencies’ clarification on bank-permissible crypto-asset activities complements these measures. Banks seeking to engage in crypto-related services, such as custody, stablecoin issuance, or tokenized deposit operations are now required to obtain supervisory non-objection prior to launch. This ensures that institutions have robust risk management and compliance mechanisms in place before participating in digital asset markets.
The framework signals that while the U.S. is not hostile to crypto innovation, it will only proceed under well-defined prudential standards. This pragmatic approach marks a shift from regulatory uncertainty toward aligning financial stability with digital innovation.
Globally, similar trends are emerging. The European Union’s Markets in Crypto-Assets (MiCA) Regulation has established a harmonized framework across member states, mandating licensing requirements, capital adequacy standards, and consumer disclosures for all crypto service providers.
The United Kingdom’s Financial Conduct Authority (FCA) has also tightened its oversight, demanding compliance with financial promotion rules and enhanced due diligence for crypto exchanges and custodians. Together, these regulatory initiatives across the U.S., EU, and UK establish an international consensus around safeguarding consumer assets, improving transparency, and integrating crypto markets within existing financial systems rather than allowing them to operate in parallel.
For Pakistan, this global momentum provides both a reference and an opportunity. The formation of the Pakistan Crypto Council indicates recognition that unregulated crypto activity poses reputational and financial risks, especially given the country’s sensitivity to Financial Action Task Force (FATF) compliance standards.
The Pakistan government has stated objective of neither promoting nor banning crypto but creating a structured framework suggests a shift toward a middle-ground policy that balances innovation with oversight. However, the real test lies in implementation. A fragmented regulatory response, overlapping jurisdictions, or lack of technical capacity could limit the Council’s effectiveness. Learning from mature regulatory environments could therefore help Pakistan avoid the pitfalls of ad-hoc policymaking.
Three areas demand particular attention from policy makers. First, consumer protection must be the foundation of Pakistan’s digital asset policy. Exchanges and custodians should be required to segregate client assets, maintain detailed records of holdings, and undergo regular independent audits. Disclosure obligations, similar to those under the NYDFS should ensure that investors are informed of risks, custodial arrangements, and ownership rights. Establishing a national framework for crypto insurance or compensation funds could further enhance investor confidence.
Second, mitigating illicit financial flows is critical. Although the government has stated that crypto transactions have not yet significantly penetrated Pakistan’s formal system, preventive regulation is essential. The use of blockchain analytics tools already promoted in the U.S. could be institutionalized across Pakistan’s financial intelligence units to trace suspicious transactions, monitor wallet activity, and integrate with global anti-money laundering and combating the financing of terrorism (AML/CFT) networks. Licensing virtual asset service providers (VASPs) under a risk-based supervisory model, consistent with FATF’s Recommendation 15, would help ensure compliance while encouraging formal market participation.
Third, Pakistan should develop an integrated institutional structure for crypto oversight. Coordination among the State Bank of Pakistan (SBP), the Securities and Exchange Commission of Pakistan (SECP), and the Federal Investigation Agency (FIA) is vital to avoid regulatory overlap and ensure coherent enforcement. A dedicated crypto regulatory sandbox, supervised jointly by these agencies under the guidance of the Crypto Council, could allow controlled experimentation with digital financial products while generating empirical data for policy design.
Pakistan’s establishment of the Crypto Council is a timely acknowledgment that the digital asset economy cannot remain outside the bounds of formal regulation. The lessons from the NYDFS, SEC, and OCC emphasize that the credibility of a financial system in the digital era depends on its ability to protect consumers, enforce transparency, and preempt systemic risks. Therefore, for Pakistan, aligning with these global principles and tailoring them to its own legal and institutional capabilities can pave the way for a secure, innovative, and resilient crypto ecosystem.
_____________________________________________________________
Dr. Ikramul Haq, an advocate of the Supreme Court and writer is an adjunct faculty at Lahore University of Management Sciences (LUMS). Abdul Rauf Shakoori is a corporate lawyer based in the USA.