For most of the last decade, cryptocurrency occupied a legal grey zone in Pakistan. A 2018 State Bank directive barred financial institutions from dealing in virtual assets, yet tens of millions of Pakistanis transacted in them regardless, placing the country among the largest crypto markets in the world while its banking system looked the other way. That contradiction has now been resolved — decisively, and in favour of regulation.
With the enactment of the Virtual Assets Act, 2026, Pakistan has moved from prohibition to a comprehensive statutory framework. For businesses, fintech operators, investors and the diaspora, this is one of the most consequential legal developments of the year, and it repays careful attention. This briefing sets out what the Act does, the regime it creates, and what it means in practice.
From ban to framework
The journey to the Act was staged. The 2018 restriction gave way, in July 2025, to a temporary Virtual Assets Ordinance that first constituted the Pakistan Virtual Assets Regulatory Authority (PVARA). The 2026 Act now replaces that temporary measure with permanent primary legislation, having cleared both houses of Parliament and received presidential assent earlier this year. The effect is to convert PVARA from a provisional body into a permanent, autonomous federal regulator with full statutory powers.
This progression matters because it signals durability. Businesses can now plan around a framework that is anchored in an Act of Parliament rather than a time-limited ordinance.
What the Act establishes
At its core, the Act does three things.
It creates a dedicated regulator. PVARA is empowered to license, supervise and regulate virtual assets and the businesses that deal in them — "Virtual Asset Service Providers," or VASPs, a category that includes exchanges, custodians, wallet providers, token issuers and investment platforms. The Authority may issue, suspend and revoke licences, set conduct and prudential standards, conduct market surveillance, guard against manipulation and insider dealing, and impose sanctions.
It defines the subject matter broadly. A virtual asset is defined, in substance, as a digital representation of value that can be traded or transferred and used for payment or investment on blockchain or distributed-ledger technology. The definition is wide enough to capture cryptocurrencies, stablecoins, tokenised securities and similar instruments. Importantly, the Act does not make virtual assets legal tender in Pakistan; they are regulated instruments, not currency.
It builds an enforcement architecture. The regime is not advisory. Operating without a licence, or offering or promoting unauthorised virtual-asset services, carries criminal exposure — with penalties running to substantial fines and terms of imprisonment. The clear message to the market is that participation is welcome, but only within the licensed perimeter.
The licensing regime
For any business intending to provide virtual-asset services in or from Pakistan, a licence is now mandatory. The pathway is staged: PVARA is presently accepting applications for No Objection Certificates (NOCs) as a first step, with the full licensing regime to follow. Major global exchanges have already secured preliminary NOCs and begun the compliance process, though full operational licences require further steps.
The conditions signalled for applicants are demanding, and deliberately so. They include recognition in a major regulatory jurisdiction (such as the United States, the European Union or Singapore), satisfaction of minimum capital requirements, and — distinctively — compliance with Sharia principles.
The Sharia dimension
One feature sets Pakistan's framework apart internationally. The regime incorporates a Sharia-compliance layer, with a committee of Islamic-finance scholars evaluating whether services conform to Sharia principles. This makes Pakistan one of the first jurisdictions to embed Islamic finance considerations directly into its virtual-asset regulation. For operators, it is a substantive design requirement, not a formality: products and structures will need to be built with Sharia compliance in contemplation from the outset, not retrofitted.
AML, CFT and the banking bridge
The Act is expressly aligned with international financial-integrity standards. It equips PVARA to address money laundering, terrorist financing and related illicit activity, coordinating with the State Bank of Pakistan, the Securities and Exchange Commission of Pakistan, and the Financial Monitoring Unit, and operating within the framework of the Anti-Money Laundering Act, 2010 and the FATF recommendations. Licensed providers face know-your-customer and reporting obligations of the kind now standard in regulated finance.
Equally significant is a development that followed the Act. In April 2026, the State Bank issued a circular permitting regulated banks to open accounts for PVARA-licensed VASPs — reversing, in a controlled way, the 2018 prohibition. The permission is carefully bounded: such accounts must be rupee-denominated, kept segregated from company funds, and banks themselves remain barred from trading, holding or investing in virtual assets with their own or customers' funds. But the practical effect is important: for the first time, licensed crypto businesses have a lawful route to banking services in Pakistan. Without that bridge, a licence would have limited commercial value.
The strict posture on pilots and announcements
A point that has caught several market participants off guard deserves emphasis. PVARA has made clear that virtually all virtual-asset activity — including stablecoin-based remittance solutions, blockchain partnerships and pilot projects — falls within its regulatory scope, and that any agreement, memorandum of understanding or announced pilot that provides or enables such services requires prior authorisation. The Authority has cautioned that publicising an initiative before engaging with it may itself trigger regulatory consequences.
The lesson for businesses is direct: in this sector, engagement precedes announcement. A press release is not a substitute for a licence, and getting the order wrong can create rather than avoid risk.
What it means in practice
For the various participants in this market, the practical implications differ.
For fintech operators and exchanges. A licence is the price of lawful operation. The sensible course is early engagement with PVARA through the available channels — the NOC process, the regulatory sandbox, and no-action relief mechanisms — rather than launching first and regularising later. Structuring for compliance, capital adequacy and Sharia conformity should begin at the design stage.
For businesses exploring tokenisation. Companies considering tokenised instruments or blockchain-based offerings should treat PVARA authorisation as a threshold question, not an afterthought, and should coordinate with the wider regulatory picture, including the SECP where securities are involved.
For investors. The framework brings consumer-protection standards and a licensed marketplace, which is a meaningful improvement on the previous grey zone. But virtual assets remain volatile and are not legal tender; regulation reduces certain risks without eliminating market risk.
For the diaspora. The interest in stablecoin-based remittance is understandable given the scale of remittances into Pakistan, and the framework contemplates such innovation — but only through authorised channels. Any diaspora-facing remittance or payment product built on virtual assets will need to sit within the licensed perimeter.
A concluding observation
The Virtual Assets Act 2026 represents a deliberate national choice: to regulate an activity the state could not suppress, and to compete for the regulated digital-asset economy rather than cede it. For business, the opportunity is real, but so is the compliance burden — a demanding licensing regime, a distinctive Sharia layer, serious enforcement powers, and a firm expectation that operators engage with the regulator before they act, not after.
The framework is still being built out, with full licensing regulations and further guidance to come. That makes this a moment for careful positioning: for those intending to participate, the value lies in structuring correctly and engaging early, so that a business is ready to move within the perimeter as it takes final shape — rather than scrambling to comply once it has.
Muzy & Meraris LLP advises on corporate, banking and finance, fintech and regulatory matters from its offices in Lahore. This briefing is general in nature, reflects the position as at July 2026, and does not constitute legal advice on any specific matter. The regulatory framework described is evolving; advice should be taken on individual circumstances before any action is taken.
Muzy & Meraris LLP
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