SECP notifies new regulations against Ponzi and pyramid schemes

The Securities and Exchange Commission of Pakistan (SECP) has notified new regulations defining and prohibiting Ponzi schemes, pyramid schemes, deceptive multi-level marketing (MLM) and unlawful referral marketing.

The Companies (Prohibition of Unlawful Activities) Regulations, 2026, notified on October 21, apply to all companies, including foreign companies, and cover schemes operating through physical and digital channels, including websites, mobile applications and social media.

What activities are prohibited under the new regulations?

The regulations identify income generated primarily through recruitment rather than genuine product sales as a key feature of unlawful marketing schemes. They also target arrangements that use money from new investors to pay earlier participants, offer high, fixed or guaranteed returns with little or no identifiable risk, or conceal how investors' funds are used.

Other prohibited practices include imposing excessive joining fees or inventory purchases, marketing products with little or no genuine demand, making misleading claims about income or products, and failing to provide adequate refund or buy-back arrangements.

The regulations also cover the sale of unregistered or unapproved products, illegal imports and smuggled goods.

Pyramid schemes involving unclear contractual terms, unreasonable purchase requirements or multiple participation positions designed to generate recruitment-based rewards are also prohibited.

Referral marketing arrangements that primarily reward participants for bringing others into unlawful MLM, pyramid or Ponzi schemes are similarly prohibited.

However, legitimate direct selling, where compensation is primarily derived from actual sales to end consumers, remains permissible.

What penalties could companies face?

The regulations extend to existing schemes exhibiting characteristics of unlawful activities, regardless of whether they operate through physical or digital channels.

Companies are prohibited from promoting, conducting or facilitating such activities.

Violations may attract penalties against companies, directors and officers under Section 512(2) of the Companies Act, 2017, which provides for penalties of up to PKR 5 million and additional penalties of up to PKR 100,000 per day for continuing violations.

Other enforcement measures may include proceedings for winding up a company under Section 301 of the Act.

Commenting on the notification, SECP Chairman Dr. Kabir Ahmed Sidhu said, "These Regulations strengthen safeguards against deceptive business practices and financial exploitation. Our objective is to promote legitimate business activities and protect the public, including from unlawful schemes operating through digital platforms."

The regulations were finalized following consultations with professional bodies, business organizations and other relevant stakeholders.

SECP advised the public to exercise caution when approached with schemes promising unusually high or guaranteed returns, particularly those offering rewards for recruiting new participants, and to verify the legitimacy of companies before investing.