Moody’s Appreciates SBP’s Move to Ban Cryptocurrencies in Pakistan

Moody’s, in a recent research report, stated that State Bank of Pakistan (SBP) prohibits banks from dealing in virtual currencies, which is a credit positive move by the central bank.

The central bank issued a circular prohibiting the country’s banks, payment system operators and service providers from dealing in virtual currencies or facilitating customers’ transactions for such purposes.

The prohibition is a credit positive move because it shields Pakistan’s banks and other financial service entities from the significant risks that virtual or cryptocurrencies pose.

It also added that the SBP has not offered any authorization or license to individuals or entities to engage in any activity which includes issuance, sale, purchase, exchange or investment in virtual currencies.

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The report also showed that the Pakistani banks are generally inactive in the area of virtual currencies. There is no international consensus on how to best address the regulatory challenges associated with virtual currencies, and the SBP’s actions are in line with those taken by other regulators worldwide.

The SBP advises banks not to facilitate their customers transacting in virtual currencies. The prohibition applies to the full spectrum of financial services they offer, including the use of bank transfers, credit cards or consumer loans that customers can use to invest in virtual currencies, said the credit rating company.

Additionally, the State Bank of Pakistan issued a warning – in line with other authorities such as the European Banking Authority – against the use of virtual currencies that may lead to major financial losses with no legal protection or recourse.

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The central bank acknowledged the increased risk for illegal activities through the high degree of anonymity that virtual currencies offer, which makes tracking and documenting these transactions difficult.

The regulator also warned that there could be legal repercussions in cases where cryptocurrencies are used to transfer funds outside Pakistan.

Pakistani authorities are generally taking actions to prevent terrorism financing and money-laundering offenses.

Moody’s said that the SBP had cautioned about the legal repercussions that could happen where cryptocurrencies were used to transfer funds outside the country.

“Pakistani authorities are generally taking actions to prevent terrorism financing and money-laundering offences. We note that the Financial Action Task Force (FATF), an intergovernmental organization combatting money laundering and terrorist financing, will include Pakistan on its watch list of countries with deficiencies in anti-money laundering/terrorism financing measures this June,” said Moody’s.

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Pakistan is on the watch list of countries with deficiencies in anti-money laundering/terrorism financing measures this June.

Habib Bank, Pakistan’s largest commercial bank, paid a $225 million settlement to US authorities last September in connection with weaknesses in the compliance program at its New York branch

Moody’s highlighted the central bank wasn’t actually against the technology behind digital currencies i.e. blockchain and has initiated measures to boost its supervisory capacity, which would promote usage of new technologies in the future.

“The authorities welcome the entry of financial technology companies in the market, especially in the payments system sector, as part of Pakistan’s National Financial Inclusion Strategy, which aims to bring more people in the formal financial sector,” said Moody’s.