The Securities and Exchange Commission of Pakistan (SECP) has acknowledged that cyber currency including bitcoin has been recognized in many countries, but the State Bank of Pakistan (SBP) and the SECP have already prohibited trading/business of Crypto/Virtual currency in Pakistan.
Abdul Rahim, Director, Information System and Technology. and Najia Ubaid, Additional Director, Primary Market Approvals, Securities Market Division Monday held a briefing on the digital assets at the SECP Headquarters.
According to the SECP presentation, the economies where Security token/digital assets/crypto assets are being regulated include Hong Kong, USA, Malaysia, Japan, Thailand, Israel, Canada, Singapore and Abu Dhabi.
The cyber-currency including bitcoin has been recognized in many advanced economies but our central bank and the SECP have already prohibited Crypto/Virtual currency in Pakistan, SECP officials explained.
The SECP officials informed that since the digital/cryptocurrencies do not fall under SECP’s ambit, therefore the position paper does not deal with this issue however the SECP has started consultations to devise policy and regulations regarding the issuance of digital tokens /assets and utility tokens.
The consultation process will be held with the stakeholders, concerned citizens, experts, and the concept paper over digital assets have been shared with the banking sector regulator – the State Bank of Pakistan too.
The SECP official added that bitcoin too was one of the products of the blockchain platform, but it was a cryptocurrency that was currently banned in the country.
The SECP position papers have defined that the “Digital Assets” can be classified as Asset-backed Digital Assets/Token. While, Najia Ubaid, highlighted that initial public offering (IPO) is the process of a private company becoming public by offering shares of that company to the public.
“IPOs are backed by investment banks that list the shares on the stock exchange, allowing you to buy, sell and trade, whereas the SECP envisages that an initial coin offering (ICO) is offered as a cryptocurrency rather than as a stock, and another such product was the Security Tokens (STO).” Ubaid added.
However, ICOs are not regulated and therefore carry much more risk, the SECP highlighted adding that the ICO investment was an idea rather than a business that was already generating revenue.
The SECP intends to study and evaluate the effects of the distributed ledger, digital assets, and other innovative technologies and encourages market participants to get engaged with the regulator.
Potential Approaches to regulate Digital Assets can be either regulating and restricting new products according to existing regulations or outright banning. It is based on the philosophy of ‘let-things-happen approach, described by the Commodity Futures Trading Commission (CFTC).
There is a need to develop a policy and regulatory response to Digital Assets in Pakistan is driven by the need for innovation that may impact the financial sector of the country but digital assets do not fit within the current regulatory framework.
Digital assets may create conditions for regulatory arbitrage while posing risks; and Increasing interest, investment, and participation in Digital Assets, SECP added.