Pakistan’s roadmap to crypto legalization–II

The establishment of a regulatory framework for cryptocurrencies in Pakistan necessitates a structured and phased approach.

The first article of this series explored the initial step of defining cryptocurrencies and conducting a legal and regulatory review, which has set the stage for the next critical phase, establishing an oversight body and implementing a licensing system.

The success of crypto regulations depends on a well-functioning oversight authority that upholds compliance while promoting innovation.

The licensing framework is equally important, as it allows legal recognition to crypto businesses while safeguarding consumer interests, maintaining financial stability, and ensuring alignment with international standards.

The creation of an oversight body tailored to Pakistan’s unique financial and technological environment is essential.

The best model for Pakistan would be an independent authority under the Ministry of Finance, tentatively named the Pakistan Digital Assets Regulatory Authority (PDARA). Countries like the United States, the European Union, and Switzerland have established multiple agencies overseeing different aspects of crypto regulation, which often leads to complexity and fragmentation.

Pakistan should avoid such a model and instead develop a centralized oversight body that consolidates functions such as licensing, compliance monitoring, policy development, and enforcement under a single entity. This approach will not only reduce regulatory challenges but also streamline business operations for crypto entrepreneurs.

The PDARA should act as the primary licensing authority for virtual asset service providers (VASPs), ensuring compliance with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) regulations. This model aligns with best practices in jurisdictions like Singapore and Estonia, where centralized oversight has proven to be effective in balancing innovation with security.

The authority should collaborate with the State Bank of Pakistan (SBP) for matters related to fiat currency conversion, the Financial Monitoring Unit (FMU) for AML compliance, and the Federal Investigation Agency (FIA) for enforcement against illicit activities.

The licensing model should be designed for accessibility and efficiency, ensuring that businesses can enter the market without excessive bureaucratic hurdles. A key component of this system is the Virtual Asset Service Provider (VASP) license, which is required for crypto exchanges, trading platforms, custodial wallet providers, crypto payment processors, and other virtual asset businesses.

The European Union’s Markets in Crypto-Assets (MiCA) regulation provides an effective licensing model by categorizing crypto businesses based on their level of risk and imposing proportional requirements. Pakistan should adopt a similar approach by introducing different types of licenses tailored to the business model and operational risk of each entity.

The benefits of a VASP license include market legitimacy, access to financial services, and compliance with international regulations, which areessential for attracting foreign investment.

Similarly, licensing requirements should include company registration, minimum capital thresholds, AML/KYC compliance, cybersecurity measures, and transparency in operations.

While some jurisdictions, such as New York with its BitLicense, impose high financial and compliance barriers, Pakistan should adopt a more business-friendly approach similar to Lithuania, where licensing is cost-effective and processed within a reasonable timeframe.

However, Czech Republic, Georgia, and Slovakia models can be valuable references for Pakistan, as they offer streamlined regulatory frameworks with low processing times for granting licenses, minimal bureaucratic hurdles, and clear compliance requirements.

The government of Pakistan should consider implementing an efficient licencing system by introducing two categories of VASP licenses, a basic licence for startups and small businesses, and a full-scale licence for exchanges and trading platforms.

The adoption of a dual-tier licensing approach would allow smaller businesses to obtain an entry-level licence with lower capital and compliance requirements, while larger platforms would be subject to stricter regulations. This approach would foster innovation by enabling new enterprises to enter the market with reduced barriers while ensuring financial security through comprehensive oversight of both larger and small entities. This will encourage both innovation and financial security in the sector.

The VASP licence application process should be streamlined through a single-window system managed by the PDRA. This will involve submission of business documentation, compliance policies, financial statements, and cybersecurity frameworks, followed by a regulatory review and approval process.

The challenges faced by businesses in obtaining a VASP licence include long processing times, high compliance costs, and regulatory uncertainty.

Pakistan can address these issues by implementing fast-track approvals for startups and providing regulatory sandboxes where businesses can test their models before obtaining full licencing.

The key considerations in awarding licences should include the applicant’s financial stability, operational integrity, and risk management capabilities. The licencing framework should incorporate a fit-and-proper test for business owners and key personnel to ensure that only credible entities are permitted to operate.

The government of Pakistan should also establish strict due diligence processes to assess the background, financial health, and operational history of applicants. The ongoing compliance should be enforced through periodic audits, reporting obligations, and continuous risk assessment to prevent financial misconduct and regulatory breaches.

The introduction of a transparent and well-defined evaluation process will enhance investor confidence, promote responsible business practices, and strengthen Pakistan’s position as a credible and secure jurisdiction for crypto-related activities.

The licencing framework should differentiate between various business models operating within the crypto space. The exchanges and trading platforms should be subject to stringent AML/KYC regulations, while wallet providers and payment processors should have moderate compliance obligations.

Similarly, token issuers should be required to disclose financial and technical details about their offerings to prevent fraudulent Initial Coin Offerings (ICOs). The regulatory framework should also address decentralized finance (DeFi) platforms, which operate without intermediaries and pose unique regulatory challenges.

A major challenge in regulating the crypto industry is striking a balance between innovation and compliance.

Overly strict regulations, as seen in the United States, have driven many crypto businesses to offshore jurisdictions with more lenient policies. However, countries like El Salvador have adopted an overly lax approach, which has led to concerns about financial stability.

Pakistan should position itself as a crypto-friendly jurisdiction by maintaining a balanced approach that encourages business growth while ensuring regulatory compliance.

Comparing global licensing models, the European Union’s MiCA framework provides the most structured and harmonized approach, offering clarity and consistency across member states; whereas, the United States follows a fragmented system, where businesses must comply with both federal and state regulations, leading to complexity and high costs.

Switzerland, on the other hand, provides a progressive regulatory environment with clear compliance guidelines, making it an attractive destination for crypto businesses. Pakistan should take inspiration from Switzerland’s streamlined approach while ensuring that regulations are tailored to its economic and legal environment.

The best model for Pakistan should incorporate elements from successful jurisdictions while addressing the unique challenges of the local market.

The PDRA should serve as a one-stop regulatory authority with clearly defined licensing categories, efficient approval processes, and proportional compliance requirements. The licencing framework should offer cost effective registration fees and reduced compliance burdens for startups to encourage market entry.

Additionally, the integration of blockchain technology into the regulatory process can enhance transparency and efficiency, making Pakistan’s licencing model more adaptable to future advancements.

The ultimate goal of establishing a licencing framework is to foster trust in the crypto ecosystem while ensuring financial stability and compliance with international standards. By adopting a well-structured oversight and licensing system, Pakistan can introduce itself as a competitive player in the global digital economy.

The establishment of the PDRA and the implementation of a balanced licencing approach will create a regulatory environment that supports innovation while safeguarding against risks.

The clear guidelines, transparent licencing procedures, and a focus on fostering a crypto-friendly ecosystem give Pakistan the potential to emerge as a leading destination for blockchain and digital asset businesses.

Copyright Business Recorder, 2025