Securities & Exchange Commission of Pakistan (SECP) held a briefing on Monday in its head office in Islamabad, elaborating on the consultation paper it has recently released on digital assets trading and the status of crypto currencies. It emphasised the need to develop regulations to engage with this emerging technology driven market that does not fit existing financial definitions.
The online briefing was addressed by Additional Director, Primary Market Approvals, Securities Market Division Najia Ubaid and Director, Information System and Technology Abdul Rahim.
Director Abdul Rahim said that although the State Bank and SECP have prohibited private crypto/virtual currencies but the way investors are showing interest has forced SECP and State Bank has to come up with a plan to deal with crypto currency platforms.
He said the market capitalisation of crypto currencies has now reached around $555 billion and that shows how much potential it holds. He added that in a similar vein, State Bank has already given approval to seven digital payment platforms and after completion of formalities they will be operational.
He said that since crypto currency is getting increased attention from investors, the sooner we give approval to its trading the better.
“We’re keeping a close liaison with State Bank to evolve a mechanism for the trading virtual currencies,” he added.
Abdul Rahim further said that they’ve yet to decide whether its trading can be done through Pakistan Stock Exchange or it needs another platform.
Additional Director, Primary Market Approvals, Securities Market Division Najia Ubaid said that right now asset transfer processes can be inefficient, expensive and vulnerable. Through different parties, banks and auditor’s records, anybody can get access to it. She said to maintain the confidentiality and privacy of the client, a mechanism for digital trust is required which is difficult proposition.
However, she said by using a digital assets trading platform like Blockchain these problems can be overcome.
She said Blockchain is an Open ledger, a technology for securely transferring assets without a trusted third party. She said third parties often charge sizeable fee and slow down transactions. Furthermore, their use in banks and credit card companies are potential risks to customers.
“An Open Ledger is one that any client can access but cannot tamper”, she said.
Najia said every client has an identical copy of the blockchain, which records all the transactions in the entire system.
To minimize the risk, Najia Obaid said feedback from the judiciary and Federal Investigation Agency (FIA) is also requested to reduce the possibility of fraud, market manipulation etc.
She said that the SECP authorities before taking decision always seek legal advice from the judiciary. She said unlike developed markets the size of undocumented sector is quite big in Pakistan and that’s why SECP and SBP are very cautious in their approach.
“Our market dynamics are totally different we have to take more protective measures to make sure that this platform cannot be used for money laundering or terrorist financing,” she added.
Consultation Paper
Earlier this month SECP prepared a paper to seek input from the financial sector, as well as other stakeholders, and cited rules and regulations formulated in Malaysia, Hong Kong and USA in the document.
“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,” the SECP stated in its document
The Commission asked stakeholders what assets can be classified as the digital or crypto assets. The paper suggested two options; digital assets backed by real assets or a distributed ledger technology. The digital assets will be described as token. The Commission suggested that token system would be two phased. One would be called primary token and second will be called secondary token option.
“An option would be registering the Initial Exchange Operators (IEOs) who shall perform the due diligence to allow public offering through capital market by mode of issuing security tokens,” the Commission’s paper suggested.
