The State Bank of Pakistan has issued a new directive that permits regulated financial institutions to open bank accounts for licensed Virtual Asset Service Providers (VASPs), effectively rescinding a 2018 ban. This move signals a significant shift in Pakistan’s regulatory approach to digital assets.
- Key Takeaways
- A 2018 prohibition on banks engaging with virtual assets has been lifted.
- Regulated entities can now open accounts for VASPs holding a valid license from the Pakistan Virtual Asset Regulatory Authority (PVARA).
- Banks are prohibited from using their own funds or customer deposits for virtual asset trading or holdings.
- Strict segregation of VASP client funds is mandated, with dedicated non-remunerative accounts.
- Enhanced due diligence for Anti-Money Laundering (AML), Counter-Terrorist Financing (CTF), and Countering Proliferation Financing (CPF) is required.
The directive, effective immediately, authorizes banks, microfinance banks, and payment system operators to provide banking services to entities licensed by PVARA. This replaces a prior circular from April 2018 that had broadly prohibited engagement with virtual currencies such as Bitcoin and Litecoin.
Under the new framework, regulated entities must verify the PVARA license or a No Objection Certificate before onboarding VASPs. The central bank mandates stringent adherence to Anti-Money Laundering, Combating the Financing of Terrorism, and Countering Proliferation Financing regulations, including enhanced customer due diligence processes.
A core requirement of the updated rules is the establishment of segregated Client Money Accounts for VASPs. These accounts, to be denominated in Pakistani Rupees, must be non-remunerative, prohibit cash transactions, and cannot serve as collateral for financing. The regulations also strictly forbid the commingling of client funds with a VASP’s operational capital.
Furthermore, banks are explicitly barred from using their proprietary funds or customer deposits to invest in, trade, or hold virtual assets. Financial institutions are also required to update their customer risk profiling models to incorporate VASP exposure and to implement continuous monitoring for suspicious transactions, reporting them to the Financial Monitoring Unit.
This regulatory evolution follows the enactment of the Virtual Assets Act, 2026, on March 6, which established PVARA as a statutory body. The Act imposes significant penalties for unlicensed operations, including fines of up to PKR 50 million (approximately $179,000) and potential prison sentences of up to five years.
Potential Regulatory Precedent
The State Bank of Pakistan’s decisive action to permit regulated banking access for licensed VASPs, while establishing clear operational and compliance guardrails, could serve as a significant precedent for other jurisdictions grappling with the integration of digital assets into traditional financial systems. By creating a defined legal pathway and mandating specific segregation and AML/CTF protocols, Pakistan is attempting to balance innovation with financial stability and security. This approach may influence how other central banks and financial regulators consider licensing, operational requirements, and the necessary risk management frameworks for virtual asset service providers. The emphasis on segregated client accounts and the prohibition of banks’ proprietary involvement with virtual assets are particularly notable aspects that could be adopted elsewhere as a means to mitigate systemic risk.
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