Population: 221 million

Wealth in domestic bank deposits: 97 billion USD (December 2022)

Offshore expatriated wealth: 2.4 billion USD

Main offshore banking locations: N/A

Number of individual brokerage accounts: 276,000 (2024)

Crypto adoption (% of population): 15.4 million (6.4%)  

TLDR

Pakistan maintains strict foreign exchange and capital controls due to forex reserve pressures. However, authorities aim to enable growth in foreign investment and cross-border transactions. Cryptocurrency adoption is substantial despite an official ban. Securities regulation emphasizes transparency and investor protection to nurture capital market development. The regulatory climate is evolving quickly, necessitating close monitoring.

Exchange Controls

The State Bank of Pakistan has introduced several exchange control measures, including:

– Mandatory conversion of export proceeds into local currency within 3 months

– Limits on foreign currency withdrawals from bank accounts

– 100% cash margin requirements for import of certain goods

– Limits on advance payments exceeding $10,000 without SBP approval

These controls intend to curb demand for foreign currency, given Pakistan’s declining forex reserves, which dropped to $3.7 billion in January 2023. The Pakistan rupee is under pressure, falling over 30% against the US dollar since 2022. The SBP is enforcing tighter exchange controls to manage external imbalances.

However, Pakistan also aims to facilitate foreign direct investment and expand international trade. The government is undertaking reforms to simplify cross-border transactions and allow greater capital mobility, in line with IMF recommendations. Therefore, authorities are adopting a balanced approach between controlling outflows and enabling inflows.

Distribution of foreign investment products

The Securities Act 2015 strengthened investor protection, market oversight and enforcement mechanisms. It expanded SECP’s inspection and audit powers over market entities like brokers. The SECP can now impose substantial monetary penalties of up to PKR 25 million per violation. It also introduced new offenses related to market manipulation.

To protect shareholders, the Act prohibits insider trading and fraudulent activities in relation to securities. It increases disclosure requirements for issuers, intermediaries and advisers. Companies must prominently declare all risk factors in prospectuses and shareholder reports.

For foreign companies, the SECP reviews audited financial statements from the last 5 years before approving a public offer. Foreign issuers must submit quarterly financial performance reports and promptly notify the SECP regarding any change in operations or ownership. These measures enhance transparency for local investors accessing foreign securities.

Qualified Investors

The Pakistan Stock Exchange made the requirements more inclusive for individual investors on the GEM Board. Earlier, only shareholders of a listed company qualified to invest in GEM companies. Now, any individual with over PKR 5 million in assets can invest, considering the total value of their securities, properties, vehicles and other assets.

Previously, GEM companies could only raise capital through private placements. The relaxed standards allow them to make public offerings to accredited investors, widening their fundraising avenues. This change aims to facilitate growth of early-stage enterprises and startups through access to sophisticated investors.

Cryptocurrency Regulation

A cryptocurrency ban was recommended by the State Bank and enacted by the federal government in May 2023. Trading and mining of cryptocurrencies is illegal, with penalties including fines and imprisonment. The ban extends to promoting cryptocurrencies and related activities through advertisements or social media.

However, Pakistan has one of the highest crypto adoption rates globally. Interest surged in 2022 when the crypto market grew over 150% year-over-year. Pakistan-based wallets traded $25 billion worth of cryptocurrency in 2022. Citizens view crypto as a hedge against a falling rupee. Remittances to Pakistan via crypto crossed $400 million in 2022.

The State Bank of Pakistan is also planning to launch its own central bank digital currency by 2025 to boost financial inclusion and reduce underground crypto activity. Hence, the regulatory attitude remains fluid. Authorities are still exploring efficient policies to address crypto demand while fulfilling global watchdog requirements.