KARACHI: The Sindh High Court on Monday summoned officials of the State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP), Ministry of Finance and Federal Investigation Agency (FIA), asking them to come up with comments and suggestions as to how cryptocurrency can be allowed and regulated in Pakistan.

The two-judge bench headed by Justice Mohammad Karim Khan Agha was of the view that Pakistan should also move with times and regulate cryptocurrency.

It observed that since the SBP and SECP were not allowing cryptocurrency business transactions, this mode of trade was being driven underground and thus, prima facie, causing such trade and transactions in black market which was completely unregulated and can lead to illegal activities, such as money laundering and terror financing.

When the bench took up a petition challenging a circular reportedly issued in April 2018 by the SBP barring the use of virtual currencies, it noted that in essence the petitioner wanted to open business concerning cryptocurrency exchange in the country, but it appeared that the SBP has issued directions to banking companies banning any transaction in cryptocurrency.

Summons officials of State Bank, SECP, FIA, finance ministry to seek their comments

The lawyer for the SBP referred to the Banking Companies Ordinance, 1962, and State Bank of Pakistan Act, 1956, but the bench noted that both laws were over 50 years old and observed that now the Pakistan Stock Exchange was dealing in derivatives etc. and such institutions and transactions were not available at the time of promulgating these laws.

Globally cryptocurrency is becoming an accepted mode of transaction and in many countries, it seems that regulating banks and their exchange commissions are putting in place safeguards to ensure that the use of cryptocurrency is allowed but subject to restrictions so that money laundering, terror financing and other illegal banking transactions are avoided, the bench in its order added.

It further stated that Pakistan should also move with times recognising that cryptocurrency was now a part of business transactions. “In our view Pakistan needs to move with the times and should embrace cryptocurrency business or otherwise and regulate the same,” it added.

The bench directed a deputy governor of SBP to appear on Oct 19 and explain what the SBP is doing in order to facilitate this business whilst making appropriate regulations for the same and it also summoned the SECP director for next hearing to assist SBP as well as the court as to how cryptocurrency can be allowed and regulated.

Moreover, the court issued a directive to the Ministry of Finance’s secretary to send a representative, fully conversant with cryptocurrency business, who will also assist it on the subject matter at next hearing.

The petitioner contended that cryptocurrency was based on decentralised digital money and regulating facilities were available and recognised vis-a-vis cybercrime which FIA was monitoring and in essence in most countries this cryptocurrency was already transacted.

On the claim of petitioner that there were many unregulated institutions in the country which were carrying out cryptocurrency business in an illegal manner, the bench said if this was the case, it can cause danger of money laundering and terror financing and other criminal activities.

The bench also summoned the director of the FIA’s cybercrime wing to come up at next hearing with comments about regulating cryptocurrency exchange and what action, if any, has been taken against persons engaged in unregulated cryptocurrency business.

Published in Dawn, October 5th, 2021