With presidential ordinance set to lapse, Senate passes bill for regulating virtual assets – Business

The bill provides for the establishment of the Pakistan Virtual Asset Regulatory Authority, envisioning it as an autonomous corporate body empowered to licence, regulate and supervise virtual asset service providers and issuers in the country.

Elaborating on the body’s functions, the legislation says it will “protect customers and investors and the integrity of Pakistan’s virtual asset markets by establishing and enforcing appropriate safeguards and conduct of business requirements, prudential and operational-resilience, risk-management standards, and measures to prevent money laundering, terrorist financing and other illicit use of virtual assets”.

It shall also attract investment and encourage companies operating in the field of virtual assets to base their businesses in Pakistan.

Moreover, PVARA shall “promote responsible innovation, digital financial inclusion and the development of compliant virtual asset markets within a framework that manages risks and supports financial stability and market integrity”.

The body shall promote, develop, govern, and regulate the adoption, deployment, and scalable use of blockchain technology and distributed ledger technology across Pakistan, the bill further states.

The legislation also states that PVARA will coordinate with the Financial Monitoring Unit, National Anti-Money Laundering and Counter Financing of Terrorism Authority and other relevant authorities, as well as law enforcement agencies, to combat money laundering, terrorist financing and other illicit activities associated with virtual assets, in accordance with the Anti-Money Laundering Act, 2010, other applicable laws and international standards.

The regulatory body will also advise the government on “regulatory, supervisory, technical or emerging-risk matters relating to virtual assets, digital asset markets, tokenisation, stablecoin structures, blockchain, distributed ledger technology, cyber-risks or any matter connected with its mandate”.

The bill also authorises PVARA to devise “regulations, standards, directives, guidelines, handbooks and circulars, or any other instrument”, consistent with the objectives of the legislation and other applicable laws.

It will also be authorised to set risk-management, cybersecurity, data protection and technical standards and “issue, vary, suspend or revoke licences, approvals or directives under this Act and prescribe conditions for such actions”.

The bill further states that it may prescribe licencing conditions, eligibility criteria, renewal requirements and any additional obligations for those issued licences under the yet to be formalised PVARA law.

It will also be authorised to conduct on-site inspections and off-site monitoring of licencees and other entities to ensure compliance with this PVARA law and other relevant rules and regulations.

Moreover, the bill states, the body may also ensure compliance with “data protection, data governance and cyber security obligations by virtual asset service providers subject to supervisory follow-up”.

It will also be empowered to impose administrative sanctions in accordance with the provisions of the PVARA law and “levy such fees, charges and penalties as may be prescribed by rules” devised under this law.

PVARA will also operate regulatory sandboxes in a “transparent and accountable manner” and “enter into cooperation or mutual assistance arrangements with domestic and foreign regulators and law enforcement agencies to facilitate information sharing and coordinated action, including mutual recognition of regulations and licences”, the bill states.

It further details that the body will comprise a chairperson — who will be appointed by the federal government — two secretaries, from the law and finance ministries each, State Bank of Pakistan’s governor, Securities and Exchange Commission of Pakistan chairperson, National Anti-Money Laundering and Counter Financing of Terrorism Authority chairman, Pakistan Digital Authority chairperson and two independent directors “with proven expertise and a strong track record possessing expertise relevant to virtual asset markets, digital technology and digital finance”.

The directors will also be appointed by the federal government.

“The members of the authority, other than ex-officio members, shall hold office for a term of three years and shall be eligible for one further term of three years,” the bill states.

The bill states that “whoever, willfully, provides an unlicenced virtual asset service shall be punishable with imprisonment for a term up to five years, or with fine up to Rs50 million, or both”.

It adds that whoever conducts an initial virtual asset offering in contravention” of the rules and regulations established under the PVARA law shall be punishable with imprisonment for a term up to three years or with fine up to Rs25m or with both.

The bill also penalises market manipulation and insider trading.

It further states that “a virtual assets appellate tribunal shall be established and no court shall take cognisance of a legal dispute under this Act or the rules or regulations made thereunder to which the jurisdiction of the Virtual Assets Appellate Tribunal extends”.

The tribunal’s jurisdiction has been described as: “Any virtual asset service provider, licencee, or any other person aggrieved by an order of the PVARA may prefer an appeal before the Virtual Assets Appellate Tribunal within 30 days of the date on which the order was communicated.”