Pakistan is taking the digital asset lead in South Asia, making its position clear in a regulatory consultation paper, as the Islamic Republic intends to capitalize on this burgeoning asset class in a regulated, safe and efficient manner.
Recognizing that the current regulatory infrastructure does not support the complexity and uniqueness of cryptocurrencies as well as the inherent risks of this relatively new asset class, the Securities and Exchange Commission of Pakistan (SECP) is engaging market stakeholders to assist it in crafting the necessary policies.
The regulator has published a position paper on the regulation of digital asset trading platforms, covering areas including definition of digital assets, mechanism for operation and regulation of digital assets and potential approaches to designing a robust regulatory regime for digital assets, among others.
“Digital assets also known as virtual assets, and crypto assets are the start of a new era of digital finance, and demand innovative regulatory measures and approaches by the regulators across the world. This could only be possible by initiation of a new era that reinvents regulatory regime/measures as they are known to the regulators globally today,” noted the regulator.
Defining digital assets as asset-backed digital assets or tokens and distributed ledger technology-based digital assets/tokens (covering both utility and security tokenization), the SECP has identified two potential regulatory approaches it could take: regulating new products using existing parameters; or regulating based on a ‘let-things-happen’ approach, described by the Commodity Futures Trading Commission as the ‘do-not-harm’ approach, where the financial sector is considered as dynamic and the associated need to innovate is strongly emphasized.
The SECP is leaning toward the latter approach.
“The do-not-harm approach is highly cognizant of not letting overregulation stifle innovation, and supports finding the optimal balance between innovation, the concomitant risks and the wider safety of the financial system,” the paper read.
It must be noted that the consultation paper focuses exclusively on non-government- or non-central bank-issued crypto assets and not on central bank digital currencies. The regulator intends to hold multiple discussion sessions on the subject matter.
Establishing an official framework would work in Pakistan’s favor to grow this emerging asset class which has gained significant traction among Pakistanis. It would also mitigate related risks including money laundering, which is rampant enough in the Islamic Republic to the point of it being placed on the Financial Action Task Force’s grey list for failing to suppress terror financing.
Should policies be introduced, it is likely Shariah concerns would also be potentially addressed, as is the case with other SECP regulations.