Virtual Asset Ordinance 2025: Explanation and comments—I

Business Recorder

4 days ago

General
The President of Pakistan has promulgated an Ordinance by the name of Virtual Assets Ordinance 2025. The Ordinance which shall come in force at once on July 8, 2025 has been issued to establish a regulatory authority for the licensing, regulation, and supervision of Virtual Assets and Virtual Asset Service Providers, and to provide for related matters.
The Ordinance came into force on July 8, 2025. There is no retrospective application. Thus at this stage there is no approved virtual asset, issuer or service provider in Pakistan.
This effectively also means that 'cryptocurrency' or any such similar transactions which were undertaken in the past or which will be undertaken, if not in contravention of the foreign exchange law are permissible; however, no legal right can be enforced in Pakistan for such transactions.
What is a Virtual Asset?
Virtual asset is, in principle, a digital currency issued by any entity. This may be called a coin or a token. That non-tender coin or token can be used for payments and investments. In general sense, other than fiat referenced virtual assets, there is no guarantee of redemption at par value or any return on such assets. However, the regulatory framework may provide a manner and value for the purposes of redemption.
A fiat reference virtual asset is effectively a digital currency backed by actual currency.
In other words, it is an information or code or number or token (not being Pakistani currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically or non-fungible token (NFT) or any other token of similar nature, by whatever name called.
The Ordinance defines the same as under:
(xxii) 'Virtual Asset' means a digital representation of value that can be digitally traded or transferred and used for payment or investment purposes, but does not include digital representations of fiat currency, securities or other financial assets regulated under any other law
For the avoidance of doubt, Virtual Assets are not legal tender;
The characteristics are:
a. A digital representation but not a legal tender;
b. A representation of value that can be traded or transferred;
c. For use of payment or investment;
d. Does not include representation of fiat currency, securities and other financial assets regulated under any other law.
Fiat currency means a type of money that is declared legal tender by a government, but is not backed by a physical commodity like gold or silver. Its value is derived from the public's faith and trust in the issuing government or central bank. Examples include the US dollar, the euro, and the Japanese yen. Pakistani rupee is also a fiat currency.
Exclusions from general definition in the Ordinance
The Ordinance specifically provides that following transactions will fall outside the ambit of these regulations.
(a) digital representations of value or rights that are transferable or usable only within a closed ecosystem of the Issuer, including-
(i) non-transferable outside a closed ecosystem;
(ii) non-exchangeable with real world goods, services, discounts, purchases outside a closed ecosystem;
(iii) non-tradeable onwards on the secondary market outside of the closed ecosystem;
(iv) non-saleable on a secondary market outside of the closed loop-system;
(v) non-usable for payment or investment purposes; and
(vi) non-exchangeable for fiat-currency;
Explanation: For the purposes of this section, a 'closed ecosystem' refers to a digital environment or platform in which Virtual Assets or tokens are exclusively issued, used, and redeemed within a defined and restricted network of users, services, or applications, and are not intended for use outside of that environment.
A 'closed loop system' refers to a transactional framework in which the issuance, circulation, and redemption of digital tokens or value units occur entirely within a predefined network, without interoperability with external payment systems, exchanges, or real-world goods and services markets.
(b) financial assets;
(c) digital representation of fiat currencies issued by the State Bank of Pakistan or any other central bank of another sovereign jurisdiction;
d) a non-fungible token which is not used for payment, investment or any other financial purposes;
(e) a non-fungible token which by its nature and function rather than the designation given by its Issuer, is not used for payment or investment purposes, and is not a digital representation of any of financial asset; or
(f) any other digital representations of value or rights sought to be expressly excluded by the Authority.
This means that aforementioned transactions though being those related to virtual assets are not covered under the Ordinance.
Supremacy of Exchange Regulations
In case, if any provision of the Virtual Assets Ordinance 2025 is inconsistent with Foreign Exchange Regulation Act, 1948 (Act) then Act will prevail.
Thus if there is a restriction of transfer of foreign exchange outside Pakistan under the Act then any provision of this Ordinance will remain subservient to the Act.
Need for Regulatory Framework
Notwithstanding the exchange regulation issues, introduction of a virtual asset law is a step in the right direction. At the moment, numerous Pakistanis, the number is sometimes estimated at thirty million subscribers, deal in cryptocurrencies of various forms and are exposed to a one hundred percent risk as there is no control over issuers. There are numerous cases of loss which remain unidentified. Many overseas Pakistanis divert their valuable remittance in such assets which remain a high risk activity in the absence of a proper regulatory framework.
Legal Status of Virtual Digital Assets
Traditionally, the law of personal property in under Anglo-Saxons system, including Pakistan has been split into two categories:
things in possession (generally, tangible things like gold bars), or
things in action (personal property that can only be claimed or enforced through a court action, like a debt or contractual right).
Certain digital assets, particularly crypto-tokens, display the characteristics of property under the common law. For example, the technology used to create crypto-tokens means that they cannot be duplicated or 'double spent', which makes them different from other data. However, they do not easily fit into either traditional category of personal property. Because they cannot be physically possessed, they do not fall into the category of things in possession. However, they also cannot be things in action because their existence is not dependent upon their recognition by a legal system and claims made in relation to them.
Although there are some case laws in the English High Court that have found that certain digital assets, specifically crypto-tokens, can be property even if they are neither a thing in possession nor a thing in action, this is not definitive for the common law. There remains lingering uncertainty caused by comments in old case law that said the two categories of personal property are exhaustive, and that there can be no 'third category'.
In response to this uncertainty, the Ministry of Justice in the UK commissioned the Law Commission for England and Wales to consider this issue. The Law Commission undertook extensive consultation on the issue of whether the law does or should regard crypto-tokens and potentially certain other digital assets as property. The Law Commission concluded that crypto-tokens and potentially other types of digital asset had the characteristics of property, and recommended legislation to confirm that such assets could attract property rights despite not falling within the traditionally-recognised categories of personal property. Accordingly, a law has been introduced in the UK for this purpose.
A majority of consultees who responded to the Law Commission, including senior and specialist judges, lawyers, and technology companies, supported legislation in this area, on the basis that it would facilitate the law's continued development in this area.
There are many different kinds of digital assets with different features, including crypto-tokens, non-fungible tokens, virtual carbon credits, digital files and domain names. The common law tests for property will be applied by the courts to each specific digital asset. This means that only things with the necessary characteristics of property will be recognised as attracting property rights. The Law Commission identified crypto-tokens as the main type of digital asset likely to fall into the third category.
Creation of Virtual Asset under the Ordinance
Initial Virtual Asset Offering means a method of raising funds by an Issuer through the public offering of Virtual Assets in exchange for funds or other Virtual Assets or anything of commercial value, subject to the limitations and disclosure requirements prescribed under this Ordinance.
Thus a domestic or foreign entity can make an initial offering of virtual assets by public offering in exchange of cash, other virtual assets or anything of commercial value. This means that acquirers of virtual assets will be given a virtual asset in exchange of cash, any other virtual asset or any commercial asset. The virtual asset given has been called a Token.
Who can an Issuer of Virtual Asset
Issuer means the legal person that originates or creates a Virtual Asset and retains primary control over its initial supply, reserve assets (if any) or on-chain governance, and that bears the ongoing obligations set out in this Ordinance toward holders.
The law does not provide that an issuer has to be a Pakistani entity. It may be a foreign entity also.
Minimum Paid Up Capital for:
Both for Fiat Referenced Token issuer and Asset Referenced Token Issuer Rs 1 billion. However when
(a) the total market capitalisation of the fiat referenced or Asset-Referenced token exceeds five billion Pakistani Rupees (PKR (5,000,000,000); or
(b) the number of users based in Pakistan holding the fiat referenced or Asset-Referenced token exceeds five million (5,000,000).
Additional capital requirements may be prescribed.
Issuers of initial virtual asset offering.-
(1) A person shall not conduct or purport to conduct an Initial Virtual Asset Offering, in or from Pakistan, unless that Virtual Asset offering is approved under this Ordinance.
(2) For avoidance of doubt, a natural Person shall not be eligible to promote or conduct an Initial Virtual Asset Offering in or from Pakistan.
(3) A person desiring to conduct or promote an Initial Virtual Asset Offering, in or from Pakistan, or trading on a Virtual Asset trading platform shall be in compliance with such requirements as may be Prescribed by the Authority.
(4) A Person shall not conduct or promote an Initial Virtual Asset Offering, in or from Pakistan, or trading on a Virtual Asset trading platform unless it has submitted to the Authority an application in compliance with subsection (3) and the Authority has notified the Person, in writing, that it has no objection to the issuance.
Conditions for the issue:
Fiat-Referenced Token.
An Issuer of a Fiat-Referenced Token shall-
(a) maintain High Quality Liquid Assets (HQLA) or any other assets as prescribed by the Authority, as reserve assets equal to at least hundred percent of the outstanding value of the fiat-referenced or Asset-Referenced token, ensuring at all times the ability to meet redemption requests;
(b) hold such reserve assets in segregated accounts with custodians approved by the Authority in consultation with State Bank;
(c) ensure timely redemption of each Fiat-Referenced Token at par value, without being:
(i) unduly compromised by the disruption or failure of an intermediary or other relevant entity and infrastructure; or
(ii) within such period as the Authority may prescribe.
(d) publish quarterly audit reports of reserve composition and sufficiency,
audited by an independent auditor approved by the Authority.
High Quality of Liquid Assets mean cash, demand deposits with the State Bank of Pakistan, and other Level 1 assets recognised under the Basel III Liquidity-Coverage-Ratio framework as adopted by the State Bank of Pakistan, provided such assets are unencumbered, held in segregated custody, and can be sold for cash within one business day;
Valuation
Such Token will be tradeable digitally. The value shall be the value at which such token will be available.
Kinds of Tokens
The Ordinance has provided two kinds of Virtual Asset Tokens. These are:
a. Asset-Referenced Token means a Virtual Asset (or a basket of assets) that purports to maintain a stable value by reference to another asset, other than a Virtual Asset, which may include one or more official currencies, and which may be backed by tangible or intangible assets.
Provided that the use of any reference asset class shall be subject to such limitations or approvals as may be notified by the Authority;
An asset-referenced token (ART) is a cryptographic token used for exchange. However, its value can be pegged to more than 1 fiat, physical asset, cryptocurrency, or a mixture of all three, as seen with PAX Gold, DIAM or the ill-fated Libra Coin from Facebook.
b. Fiat-Referenced Token means a Virtual Asset that purports to maintain a stable value relative to a single Official Currency and is redeemable at par value by its Issuer. A fiat referenced token A fiat-referenced stablecoin is a type of cryptocurrency designed to maintain a stable value by being pegged to a fiat currency, like the US dollar or Euro. These stablecoins aim to combine the stability of traditional currencies with the technology and accessibility of digital assets.
Mica's Classification of Virtual Assets
The Markets in Crypto-Assets Regulation (MiCA) institutes uniform EU market rules for crypto-assets. The regulation classifies the virtual assets into:
a. E-Money Tokens: These are like digital versions of traditional money (euros, dollars). They're stable and straightforward, referencing a single fiat currency.
b. ARTs: They're similar to E-Money Tokens but can reference various assets. For instance, an ART could be linked to the price of oil, a basket of cryptocurrencies, or even multiple fiat currencies. This diversification makes them more complex.
c. Other Crypto-Assets: This catch-all category includes crypto-assets that do not aim to stabilize their value by referencing other assets. For example, Bitcoin, which doesn't rely on anything else for its value, falls into this category.
Pakistan has adopted only the first two kinds. The third classification is not permitted in Pakistan
Reserve and redemption
Fiat Reference Token
An Issuer of a Fiat-Referenced Token shall:
(a) maintain High Quality Liquid Assets (HQLA) or any other assets as Prescribed by the Authority, as reserve assets equal to at least hundred percent of the outstanding value of the fiat-referenced or Asset-Referenced token, ensuring at all times the ability to meet redemption requests;
(b) hold such reserve assets in segregated accounts with custodians approved by the Authority in consultation with State Bank;
(c) ensure timely redemption of each Fiat-Referenced Token at par value, without being:
(i) unduly compromised by the disruption or failure of an intermediary or other relevant entity and infrastructure; or
(ii) within such period as the Authority may prescribe.
(d) publish quarterly audit reports of reserve composition and sufficiency, audited by an independent auditor approved by the Authority.
(To be continued)
Copyright Business Recorder, 2025