'Illicit financing' key concern as Pakistan drafts new virtual assets law

Pakistan is preparing new legislation to regulate digital assets in line with global anti–money laundering standards set by the Financial Action Task Force (FATF), according to senior Finance Ministry officials familiar with the matter.

The proposed legal framework is designed to ensure that virtual assets such as cryptocurrencies cannot be used for money laundering, terror financing or corruption, the officials said. A key provision would require virtual asset service providers (VASPs) to obtain mandatory approval from a money-laundering reporting officer before entering into any business partnership with a politically exposed person.

Officials said the draft includes strict compliance requirements under anti-money laundering (AML) and counter–terror financing (CTF) rules, all aligned with FATF guidelines. A preliminary version of AML/CTF regulations for service providers has already been completed.

Under the plan, companies violating the rules could face license cancellation and financial penalties. Directors, sponsors or shareholders who fail to prevent money laundering activities may be declared ineligible to hold their positions.

Authorities would also be empowered to take action against suspicious transactions based on recommendations from the Financial Monitoring Unit.

Both service providers and customers would be required to follow AML/CTF procedures for all virtual asset purchases. Without proper customer due diligence, companies would be barred from forming business partnerships.

The government has also drafted governance and operations regulations for VASPs, which would apply to all licensed providers operating inside Pakistan or abroad. Officials said companies offering virtual asset services must meet requirements related to corporate structure, governance and market conduct.

Service providers would be responsible for ensuring transparent client agreements, complaint-handling mechanisms and market transparency. They would also be required to protect personal data, maintain confidentiality of client information and comply with rules governing trading accounts and virtual asset standards.

VASPs must meet all legal requirements aimed at preventing terror financing, bribery and corruption. Board members for companies offering virtual asset services would be appointed under the Companies Act of 2017, with transparency, merit, educational qualifications and relevant experience set as mandatory criteria.

Appointments would follow procedures outlined in Schedules 1 and 2 of the forthcoming Virtual Asset Service Provider Licensing Regulations, expected in 2025, the officials said.

Pakistan's digital asset sector has experienced rapid growth, with millions of users engaging in informal trading in the absence of a formal framework.

Since 2024, the government has taken a number of steps to regulate the sector, including setting up a regulator and working on its own digital currency to regularize virtual transactions.

Earlier this year, the Pakistan Virtual Asset Regulatory Authority (PVARA) was established to work as an independent body empowered to license, monitor, and supervise VASPs.

The government has also decided to issue licenses to banks, exchange companies, and jewelers to operate in the virtual currency space.