Regulating Digital Finance: A Critical Analysis of Pakistan’s Virtual Assets Ordinance 2025
Abstract
This article critically examines Pakistan’s Virtual Assets Ordinance 2025, which introduces a regulatory framework for virtual assets, crypto service providers, and a Central Bank Digital Currency (CBDC) pilot. It evaluates the Ordinance’s scope, governance, sandbox design, and licensing regime, highlighting ambiguities in enforcement, the civil–criminal liability divide, and jurisdictional overlaps. A comparative analysis with the UAE, Singapore, India, and the European Union’s Markets in Crypto-Assets Regulation (MiCA) underscores Pakistan’s regulatory gaps and strengths, particularly its Shariah-compliance approach. The article concludes with recommendations for legislative permanence, institutional capacity-building, and a tiered licensing model, arguing that without refinement, the Ordinance risks stifling innovation while creating legal uncertainty.
1. Overview & Review
- Promulgation & Scope
Issued on July 8, 2025, as an ordinance (valid for 120 days unless ratified), it establishes the Pakistan Virtual Asset Regulatory Authority (PVARA) governing crypto assets and VASPs operating in or from Pakistan.
- Key Features
- Defines “virtual assets” broadly (excluding fiat and regulated securities).
- Requires all service providers to be licensed, with capital, compliance, and reporting mandates.
- Includes regulatory sandbox capabilities and “no-action” reliefs.
- Establishes a Shariah Advisory Committee and a Virtual Assets Appellate Tribunal.
- Mandate & Governance
PVARA is autonomous, with a board including SBP, SECP, FBR, and independent experts. - Complementary Reforms
SBP piloting a CBDC, and the Pakistan Crypto Council (PCC) is exploring Bitcoin reserves and mining.
2. Pakistan’s Sandbox & Licensing (Ordinance Sections 42–45)
- Sandbox Design
- Eligibility: Innovators must submit a detailed proposal including risk assessments and exit strategies.
- Duration: Up to 18 months, with discretionary limits on financial exposure and user numbers.
- Support: No technical assistance, mentorship, or funding. Mere administrative oversight-not an enabling innovation environment.
- Post-Sandbox Transition: Lacks defined criteria or roadmap to move from sandbox to full licensing.
3. Key Concerns
- Legislative Validity: As an ordinance, it’s temporary unless Parliament approves—creating legal uncertainty.
- High Regulatory Burden: Critics highlight opaque licensing costs, “one-size-fits-all” capital requirements, and no differentiated treatment for smaller players.
- Operational Gaps: Capacity-building, stakeholder coordination (SBP, SECP, FBR), and tax clarity remain underdeveloped.
- Local Conditions & Adaptation: The approach borrows heavily from developed countries without tailoring to Pakistan’s lower crypto literacy and institutional readiness.
- Opaque evaluation and selection metrics; no clear application timeline.
- Authority can withdraw “no-action” relief arbitrarily, raising legal uncertainty.
- Enforcement and penalties (up to PKR 100 million or 5% of turnover) may be overly punitive without checks.
- Authority-Extraterritorial Scope:
It seems that the Ordinance asserts jurisdiction that is primarily extraterritorial. Virtual assets are borderless by nature, but the text does not go far enough in addressing the need for robust mutual legal assistance frameworks and technical capacity to enforce laws across national borders. - Framework for a Complex Investigation with Overlapping Authorities:
Several authorities and organizations, including the SECP, State Bank of Pakistan, FIA, and FBR, are involved in the investigation and enforcement process. This overlapping authority may result in conflicting acts, delays in the legal process, and regulatory arbitrage if there is no clear separation of powers and coordination procedures. - Is the nature of the law ambiguous-criminal or civil?
The distinction between criminal and civil culpability is muddled by the Ordinance. Although it establishes compliance requirements and sanctions that carry both civil and criminal penalties, it is unclear when a violation is solely regulatory or when it deviates into criminal activity. Both courts and investigating officers may encounter difficulties as a result of this uncertainty. - Dual Liability: Criminal Offenses (Section 50) and Civil Penalties (Section 49):
Although civil penalties and criminal offenses are covered in Sections 49 and 50, respectively, it is unclear how these two relate to one another. Can a person or thing deal with both at the same time? Does protection against double jeopardy exist? How is proportionality going to be upheld? To prevent capricious or overbearing enforcement, these questions require clarity.
4. Comparison with Other Jurisdictions
| Feature | Pakistan | UAE / Singapore | India | EU (MiCA) |
| Regulator | PVARA (new) | FSRA/SEC (established) | RBI + forthcoming VA Act | European Commission |
| Licensing + Sandbox | Included | Yes | Restricted (RBI cautious) | Yes |
| Shariah Governance | Yes (Shariah Committee) | No | N/A | No |
| CBDC Pilot | Yes | Yes | No | Multiple pilots |
| Legal Status | Ordinance, temporary | Act (stable legal basis) | Mixed; banking restrictions | Full legislative framework (MiCA) |
Pakistan aligns with global trends (UAE, EU) in licensing, sandboxing, and CBDC experimentation. Its inclusion of Shariah governance gives it a niche advantage. However, unlike the EU’s comprehensive MiCA law or UAE’s mature frameworks, Pakistan lacks legislative permanence and clarity, similar to India’s cautious regulatory stance with RBI prohibitions.
5. Singapore’s MAS Sandbox & Licensing (Payment Services Act)
Sandbox Framework
Open to fintechs, banks, tech firms; applications evaluated based on novelty, consumer benefit, and risk management.
Offers relaxations: lighter capital adequacy, board composition, asset maintenance for sandbox participants.
No-action letters available, with transparent conditions, feeding into ongoing dialogue.
Structured support: mentoring, funding access, regulatory guidance—actively nurturing innovation.
6. Licensing under MAS PSA
MAS licenses DPT (Digital Payment Token) providers: includes trading, custody, exchange.
Strong AML/CFT: KYC, travel rule, risk monitoring.
Tiered licensing: Standard vs. Major Payment Institution depending on transaction volumes and risk.
Clear penalties: up to SGD 1 million fine or 2 years’ imprisonment for breaches.
7. Direct Comparison
| Feature | Pakistan (Ordinance) | Singapore (MAS – PSA) |
| Sandbox eligibility | Detailed proposal required; no timeline or metrics. | Broad eligibility; assessed on innovation, risk controls, user benefit. |
| Regulatory relief | No-action letters, but revocable arbitrarily | No-action letters with transparent terms; integrated support |
| Support during sandbox | Administrative only; no funding or mentorship | Mentorship, capital reliefs, regulatory guidance |
| Transition to full license | No defined scaling timeline; risk of dead-end sandbox | Clear path to licensing; scaled oversight as business grows |
| Licensing framework | One-size-fits-all licensing; lacks tiers | Tiered licensing (Standard/Major); fit-for-purpose compliance |
| AML/KYC standards | Mandated, but details unclear | Robust, with KYC, travel rule, high conduct standards |
4. Suggestions for Improvement
- Parliamentary Approval
Transition the ordinance into a full Act to ensure durability beyond 120 days. - Tiered Regulatory Framework
Introduce small vs. large provider categories, with phase-wise capital and compliance thresholds, to foster startup innovation. - Transparent Licensing
Publish clear fee schedules, application timelines, and revenue model guidelines. - Capacity & Coordination
Allocate resources for PVARA training, and establish a joint taskforce with SBP, SECP, and FBR to handle supervision, AML/CFT, and tax harmonization. - Public Engagement & Education
Launch a national awareness program on crypto risks and consumer protections in local languages. - Iterative Policy Refinement
Conduct periodic (e.g. biannual) stakeholder reviews to refine sandbox rules, licensing caps, and compliance burdens. - Define eligibility & timelines
Set explicit criteria, evaluation metrics, and decision timelines for sandbox applications. - Offer regulatory reliefs
Provide proportional relaxations (e.g. reduced capital, simplified governance) during testing. - Build innovation support
Include mentorship, access to funding, and regulatory dialogue to attract serious innovators. - Ensure predictable relief
Make no-action letters binding with specified duration and limited revocation rights. - Create step-up pathways
Develop a structured process to transition sandbox pilots to full licensing seamlessly. - Adopt tiered licensing
Introduce Standard vs. Major licenses with aligned compliance and capital thresholds. - Cap penalties
Scale fines based on issue severity and business size; add oversight on enforcement.
Final Thoughts
Pakistan’s Virtual Assets Ordinance, 2025, marks a bold leap toward legitimizing and regulating the crypto sector. Establishing PVARA, including Shariah reviews, and piloting a CBDC all signal a forward-looking stance. However, to avoid stifling growth, Pakistan must convert the ordinance into enduring law, tailor compliance burdens, build institutional capacity, and align with local context.
The Ordinance is a significant and necessary attempt to regulate virtual assets, but these grey areas could create serious challenges for practitioners, regulators, and the courts alike. A clearer framework on jurisdiction, investigative overlap, and the civil-criminal divide is crucial for effective implementation.
Pakistan’s sandbox is a promising first step—but currently resembles a regulatory checkbox rather than a launchpad. On the other hand, Singapore’s MAS framework offers a clear, supportive, and well‑structured pathway from innovation to full market deployment. By adopting measurable evaluation criteria, proportional oversight, structured mentorship, and tiered licensing, Pakistan can unlock the real potential of its burgeoning crypto sector.
If adopted with these refinements, Pakistan could not only protect consumers and deter illicit finance but also position itself as a regional hub for Shariah‑compliant digital finance.
References:
- Virtual Assets Ordinance 2025 (Pakistan).
- State Bank of Pakistan, Central Bank Digital Currency Pilot Program (2025).
- European Commission, Regulation on Markets in Crypto-assets (MiCA), COM/2020/593.
- Monetary Authority of Singapore, Payment Services Act 2019 (Singapore).
- Abu Dhabi Global Market, Financial Services Regulatory Authority Virtual Assets Framework (2023).
- Reserve Bank of India, Circular on Virtual Currencies (2018).
- Zetzsche DA, Buckley RP and Arner DW, ‘Regulating Blockchain and Cryptocurrencies: Law and Policy’ (2019) 36 Banking & Finance Law Review 289.
- Arner DW, Barberis J and Buckley RP, ‘The Evolution of Fintech: A New Post-Crisis Paradigm?’ (2016) 47 Georgetown Journal of International Law 1271.
- Houben R and Snyers A, ‘Crypto-assets: Key Developments, Regulatory Concerns and Responses’ (European Parliament Research Service, 2023).