Rumor or Reality? SECP issues clarification about providing license to cryptocurrency trading platforms

According to reports, the Securities and Exchange Commission of Pakistan (SECP) has not approved or issued a license to any trading platform for cryptocurrencies. Sources state that SECP still does not regulate cryptocurrency/virtual currency or any trading platform providing similar services.

It is pertinent to mention that The SBP (State Bank of Pakistan) issued a circular on the 6th of April 2018 stating that dealing in virtual currencies is prohibited. In line with the SBP, SECP issued instructions on the 27th of August 2020, wherein it directed all the companies and Limited Liability Partnerships to ensure compliance with the SBP circular.

An anonymous SECP official said:

All the issues pertaining to currencies were under the regulatory domain of SBP, and SECP has awarded no approval/license to any trading platform for cryptocurrencies.

What is Crypto/Virtual Currency?

Cryptocurrency (or “crypto”) is a digital currency used to buy goods and services. It operates with an online ledger featuring strong cryptography to secure online transactions. Much interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.

Advantages of Digital Currency

One of the key advantages of digital assets is the ability to fractionalize them. In simpler terms, the digital assets can be broken into more affordable and transferable units that create an opportunity for greater liquidity and investor diversity.

Fractional ownership and digital currency trading in secondary markets unlock liquidity in previously illiquid markets, creating entirely new tradable assets – such as real estate tokens. This enables a more standardized form of trading for currently illiquid assets, such as corporate bonds.

Moreover, the barriers to issuing an asset or security are significantly lowered in cryptocurrency, opening up more significant opportunities for smaller issuers while existing issuers benefit from new forms of securities.

Future of Digital Currency

Experts believe that the digital asset landscape has matured significantly over the years. With constant innovation in custody, settlement, and post-trade – which remain critical functions in regulated financial markets – crypto/virtual currency will go a long way.

The regulatory response to digital assets in Pakistan is driven by the following:

i. Digital assets are a form of innovation that may impact the financial sector of the country.

ii: Digital assets do not fit within the current regulatory framework.

iii: Digital assets may create conditions for regulatory arbitrage while posing risks.

iv. Increasing interest, investment, and participation in digital assets

Will SECP ever give Crypto/Virtual currency a chance?

Speaking about the future of digital currency, an SECP official said:

SECP would continue to engage with market participants and welcome industry feedback in deciding how to regulate the digital assets domain. This area can drive major improvements in efficiency and cost-reduction for the end-users by combining trading, settlement, and custody services into one seamless service offering.

He further stated:

The objective of 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.

Reports state that the SECP will be working with the IEO operator in assessing the IEO issuer. Initial Exchange operators (IEO’s) are authority figures who shall perform due diligence to allow public offering through the capital market by issuing security tokens.

Once the SECP approves the IEO issuer, the public may be allowed to invest in the issuer’s tokens from the IEO platform. However, no decision has been taken on the matter yet as SECP is still analyzing designing regulations to register IEOs as well as prescribe an operation criterion.

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