Dr. Ikramul Haq & Abdul Rauf Shakoori
The era of uncertainty in Pakistan’s digital assets ecosystem has been distinguished by cautious postures adopted by the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP), whose regulatory interventions have oscillated between circumspect guidance and outright prohibition.
The SBP’s 2018 ban on financial institutions dealing with cryptocurrencies led to a gray market defined by peer-to-peer trading, informal remittance methods like hawala/hundi, and increased risks for all users. The resulting vacuum has constrained the evolution of a strong digital asset ecosystem, even as domestic demand for virtual asset solutions surged, driven by technology-savvy populations and burgeoning blockchain developer communities.
The substances for regulatory change are manifold, compliance pressure emanating from the Financial Action Task Force (FATF), particularly its Recommendation 15 on virtual asset service providers (VASPs), economic imperatives for expanding remittance inflows and financial inclusion and global trends emphasizing Travel Rule compliance for secure cross-border transfers.
The Virtual Assets Ordinance, 2025 (VAO 2025), promulgated on July 9, 2025, presents a proposed framework that ostensibly seeks to formalize Pakistan’s digital asset ecosystem. Regulatory architecture delineates the SBP as the authority over payment-oriented tokens and VASPs, whereas the SECP is tasked with overseeing security tokens and asset-backed offerings.
The VAO 2025 defines key concepts, including “virtual assets,” “VASPs,” “stablecoins,” and “security tokens,” while outlining regulated activities covering exchange, transfer, safekeeping, and advisory services.
Licensing and registration requirements are established, coupled with Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) obligations anchored in know your customers (KYC) and due diligence protocols.
Consumer protection and market integrity principles are articulated, aiming to prevent fraud, market manipulation, and insider trading. Despite these provisions, a critical examination reveals multiple deficiencies that could hinder Pakistan’s ambition to become a digital assets hub.
The lack of clarity and potential regulatory overlap represents a fundamental weakness in VAO 2025. The demarcation between SBP and SECP jurisdictions remains ambiguous, raising questions about the classification of hybrid assets that possess characteristics of both payment tokens and securities. This dual-regulatory risk introduces ineptitudes for businesses and investors, potentially deterring innovation in token design, decentralized finance (DeFi) applications, and emerging financial instruments.
Overly restrictive licensing and capital requirements exacerbate these issues, as prohibitively high thresholds may exclude domestic startups and local innovators, favouring only established multinational entities. The absence of proper procedure for regulatory sandbox further limits the ability of nascent ventures to experiment within a controlled environment, thereby stifling innovation and inhibiting Pakistan’s competitiveness in the global digital economy.
The treatment of decentralized finance and autonomous governance structures in VAO 2025 is insufficiently developed. It remains primarily designed for centralized entities, such as custodial exchanges, without addressing the legal status and regulatory obligations of DeFi protocols and decentralized autonomous organizations (DAOs). This gap leaves a significant portion of the digital economy unregulated, exposing users to systemic risks while simultaneously limiting Pakistan’s ability to capitalize on decentralized innovation.
Taxation issues compound these challenges, as VAO 2025 does not integrate with the Federal Board of Revenue’s policies to provide a coherent framework for capital gains tax, income tax, or withholding obligations on virtual asset transactions. The lack of clarity around mining, trading, initial coin offerings (ICOs), initial exchange offerings (IEOs), staking, and other revenue-generating activities introduces compliance uncertainty for both domestic and international participants.
Investor protection mechanisms remain another critical shortfall. Custody regulations lack sufficient specificity for segregating client assets from proprietary holdings, replicating vulnerabilities observed in high-profile collapses such as FTX. The absence of mandatory compensation or insurance schemes leaves retail investors exposed to operational, cyber, and liquidity risks, whereas dispute resolution mechanisms are potentially protracted and ill-suited to the rapid cadence of digital asset transactions.
Furthermore, technological specificity in VAO 2025 risks obsolescence. By focusing primarily on existing cryptocurrencies such as Bitcoin and Ethereum, the framework may fail to accommodate emerging protocols, consensus mechanisms, and asset classes, including non-fungible tokens (NFTs), decentralized finance instruments, and zero-knowledge proof-based systems.
Privacy concerns and regulatory overreach further complicate Pakistan’s virtual asset environment. Though AML and KYC measures are indispensable, the ordinance provides insufficient guidance on data protection standards aligned with contemporary global practices, risking excessive surveillance and undermining user trust.
Similarly, VAO 2025 does not adequately address anti-money laundering, counter-terrorist financing, and FATF Recommendation 15 compliance, which require rigorous monitoring of cross-border transactions, travel rule adherence, and ongoing reporting requirements for VASPs.
Moreover, international cooperation mechanisms are underdeveloped, limiting Pakistan’s ability to engage in reciprocal data sharing, joint enforcement, or cross-border regulatory collaboration, all of which are critical for integrating the country into the global crypto ecosystem.
The overarching deficiencies of VAO 2025 extend to taxation and economic integration. Current provisions do not comprehensively delineate the fiscal treatment of virtual asset transactions, mining rewards, staking income, or tokenized offerings. The lack of alignment with national economic policies, including financial inclusion objectives and foreign direct investment strategies, undermines Pakistan’s ability to utilize digital assets as a driver of technological growth, capital formation, and remittance inflows.
The way forward requires a comprehensive regulatory approach by Pakistan. The establishment of clear regulatory framework between the SBP and SECP, potentially through a unified oversight committee or national regulatory authority, is essential to eliminate jurisdictional ambiguities. Adoption of a phased and proportional licensing regime, incorporating tiered capital requirements and a regulatory sandbox, would foster domestic innovation while mitigating systemic risk.
Moreover, integration with national economic and fiscal policies is necessary. Coordination with the Federal Board of Revenue to clarify taxation of all virtual asset activities, including trading, mining, staking, and tokenized offerings, would create a predictable compliance environment. Simultaneously, the adoption of robust AML-CFT requirements and FATF Recommendation 15-aligned monitoring protocols would facilitate cross-border legitimacy, enabling Pakistan to participate in the global digital financial system with confidence.
Investor protection mechanisms should be strengthened through mandated custody rules, insurance or compensation schemes, and expedited dispute resolution pathways to safeguard retail participants and maintain market integrity.
The VAO 2025 represents a seminal moment in Pakistan’s pursuit of a digital economy. Its current deficiencies ranging from ambiguous jurisdictional boundaries, restrictive licensing, inadequate DeFi and DAO regulation, taxation gaps, investor protection flaws, and insufficient AML-CFT measures pose significant hurdles to positioning Pakistan as a global virtual asset hub. However, these challenges are not insurmountable.
By adopting clear, technology-neutral, and internationally harmonized regulatory frameworks, embedding proportionality and innovation-focused mechanisms, integrating fiscal and economic policies, and establishing robust investor protection and AML/CFT systems, Pakistan can transform uncertainty into opportunity.
A forward-looking, balanced, and strategic regulatory approach will enable the nation to emerge not only as a compliant jurisdiction but also as a competitive and innovative participant in the global digital asset ecosystem, driving economic growth, technological advancement, and financial inclusion in tandem.
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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, environment, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996.
He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 3000 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
X (formerly Twitter): DrIkramulHaq
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.
His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.
His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .
X (formerly Twitter): Adbul Rauf Shakoori
The recent publication, coauthored by these writes with Mrs. Huzaima Bukhari is
Pakistan Tackling FATF: Challenges & Solutions, available at:
https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35
https://www.amazon.com/dp/B08RXH8W46