Custodial wallet / SaaS in Pakistan

SBP Circular (January 2018): The State Bank of Pakistan issued Circular No. 03 of 2018, titled "Prohibition of Dealing in Virtual Currencies/Tokens (VCs/ICTs)." This circular explicitly stated that VCs/ICTs are not legal tender in Pakistan and prohibited all banks, financial institutions, and payment system providers from dealing in, processing, or facilitating transactions involving VCs/ICTs.

The State Bank of Pakistan Circular No. 03 of 2018's prohibition remains in effect, but the Pakistan Virtual Assets Regulatory Authority is actively considering its withdrawal, indicating the policy is no longer settled or dominant.

Pakistan has enacted the Virtual Assets Act, 2026, which requires all Virtual Asset Service Providers, including cryptocurrency custodians, to obtain a license from the Pakistan Virtual Assets Regulatory Authority (PVARA).

No specific rules for the segregation of client digital assets exist. While traditional financial institutions (like banks or brokerages) have strict client asset segregation rules under the relevant banking and securities laws (e.g., Securities Act, 2015, Banking Companies Ordinance, 1962), these do not apply to unregulated digital assets.

There are no mandates for insurance or bonding requirements for digital asset custodians.

No specific mandates or best practices regarding cold storage (offline storage of private keys) for digital assets are prescribed by Pakistani regulators.

The concept of a "qualified custodian" for digital assets is not defined within Pakistan's regulatory framework. The term "qualified custodian" typically refers to institutions meeting specific criteria for safeguarding financial assets, and since cryptocurrencies are not recognized as such for regulatory purposes, no definition applies.

SBP BPRD Circular No. 03 of 2018: Issued on April 06, 2018, this circular explicitly prohibits all banks, Microfinance Banks (MFBs), and Payment System Operators (PSOs)/Payment Service Providers (PSPs) from:

Cryptocurrency exchanges, custody providers, and payment processors cannot legally operate with bank accounts in Pakistan or integrate with the traditional financial system.

Custody Providers: No license. Cannot lawfully connect to the banking system.

Anti-Money Laundering Act, 2010 (AMLA 2010): This is the overarching legislation that criminalizes money laundering and provides the legal basis for AML/CFT measures in Pakistan. It mandates reporting obligations for financial institutions and designated non-financial businesses and professions (DNFBPs).

SBP CDD / KYC Regulations, 2022 (BPRD Circular No. 04 of 2022): This is a critical development. The State Bank of Pakistan, through its Banking Policy & Regulations Department (BPRD), issued comprehensive Customer Due Diligence (CDD) / Know Your Customer (KYC) Regulations, 2022. These regulations explicitly define and include "Virtual Asset Service Providers" (VASPs) as a type of entity that must comply with AML/CFT requirements, effectively bringing them under the regulatory ambit.

Key Aspect: These regulations define a VASP, consistent with FATF definitions, and mandate that they adhere to all the CDD/KYC obligations applicable to other financial institutions.

Identification and Verification of Customer Identity:

Beneficial Ownership: Identify and take reasonable measures to verify the identity of the beneficial owner(s) of the customer, including for legal persons, trusts, and other legal arrangements.

VASPs must adopt a risk-based approach to CDD. This means applying enhanced CDD measures for higher-risk customers, products, services, transactions, or geographic areas.

Politically Exposed Persons (PEPs): Implement enhanced CDD measures for PEPs, including obtaining senior management approval for establishing business relationships, taking reasonable measures to establish the source of wealth and funds, and conducting ongoing enhanced monitoring.

Sanctions Screening: Screen customers and transactions against national and international sanctions lists (e.g., UN Security Council sanctions lists).

"Travel Rule" (FATF Recommendation 16): While the SBP CDD/KYC Regulations 2022 implicitly align with FATF standards, explicit guidance on the "Travel Rule" for VASPs (requiring the collection and transmission of originator and beneficiary information for crypto transfers above a certain threshold) may still be developing or need further specific directives. However, as Pakistan adheres to FATF standards, VASPs should anticipate and prepare for full implementation of this rule.

Trigger: Any transaction (attempted or completed) that appears unusual, lacks a clear economic or lawful purpose, is inconsistent with the customer's known profile, or raises suspicion of money laundering or terrorist financing.

"No Tipping Off": VASPs and their employees are prohibited from disclosing to the customer or any third party that a STR has been or will be filed.

Customer Records: All records obtained through CDD procedures, including identity documents, account files, business correspondence, and analysis of transactions.

Entity Targeted: Binance Pakistan (and implicitly, individuals running scam schemes facilitated through Binance). Violation Type: Alleged involvement in multi-million dollar cryptocurrency scam, money laundering, illegal financial transactions, non-compliance with local regulations. The FIA issued a formal notice to Binance's Global Head of Growth for its alleged role in facilitating fraudulent transactions that led to significant financial losses for Pakistani citizens. Penalty Amount: No direct fine was publicly levied against Binance by Pakistani authorities. The "penalty" was primarily investigative pressure, a formal inquiry, and a demand for cooperation, which could have led to further action or reputational damage. The FIA initiated criminal proceedings against individuals involved in the scam. Outcome: The FIA launched an inquiry and issued a formal notice to Binance, demanding details and cooperation. Binance subsequently stated its commitment to cooperate with the FIA and local authorities. The FIA also identified and initiated action against 11 individuals alleged to be masterminds of a multi-million dollar fraud scheme involving Binance. The action highlighted the government's serious concerns about unregulated crypto activities. While Binance itself wasn't fined, the action put significant pressure on the exchange and warned the public.