SECP Decides to Regulate Digital Assets Virtual Assets and Cryptocurrencies

SECP Decides to Regulate Digital Assets, Virtual Assets and Cryptocurrencies

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First time in Pakistan, any regulatory authority takes such initiative. The Securities and Exchange Commission of Pakistan (SECP) has decided to issue a regulatory framework for regulation and monitoring of the digital and virtual assets. That includes Crypto Assets to control the misuse of virtual currencies in Pakistan that have a global market value of over EUR 7 billion worldwide.

In this regard, the SECP has drafted a document on the regulation of Digital Asset Trading Platforms in Pakistan.

Although there is no consensus on the definition of digital assets, the shared commonalities between all of them are:

  • Digital/Cryptocurrencies; digital tokens/assets; Utility Tokens
  • Security Tokens – either backed by real assets or cryptographic Distributed Ledger Technology.

Let us take a look at what these Tokens are?

Utility Token

These tokens are designed to be used for a particular purpose, usually within the application/platform for which they are developed. The most common use of a utility token is a payment option for purchases within the platform. For instance, Medipedia Platform – A blockchain-based healthcare startup aimed at Medical Tourists. Moreover, the platform has issued utility tokens i.e. MEP tokens can be used for payment of healthcare services within the Medipedia platform.

Security Token

Token issued with some investment dimension through an initial security offering is classified as a Security token. Such tokens bear more similarity to financial instruments than to cash. Security tokens should be thought of as assets providing rights such as ownership, right to share in future profits or cash flows, or payment of a specific sum of money (e.g., dividends).

The SECP’s objective with the regulatory framework is to support financial inclusion efforts and the advancement of technological innovation in a responsible and balanced manner; ensure the safety and efficiency of the capital market and its institutions; ensure consumer and investor protection; minimize opportunities for regulatory arbitrage; combat the circumvention of exchange control rules and regulations; illicit financial flows, money laundering and the financing of terrorism.

According to the SECP, 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. 

A global consensus has not yet emerged in relation to giving a unanimous definition to Digital Assets. This is because digital assets have treated differently by regulators across the world. Some giving prime importance to the operational perspective of digital assets while others have taken an approach to defining them to be able to make the regulations robust to minimize Anti-Money Laundering, terrorist financing, and tax evasion reservations for their respective jurisdictions.
The problem is significant as even though the full scale of misuse of virtual currencies is unknown. Its market value has reported exceeding EUR 7 billion worldwide, SECP said.

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