State Bank of Pakistan Lifts 2018 Ban on Bank Accounts for Virtual Asset Service Providers

This policy change integrates virtual assets into the formal financial system, potentially stabilizing the market and enhancing compliance.

• On April 14, 2026, the State Bank of Pakistan rescinded its 2018 ban, allowing banks to open accounts for licensed virtual asset service providers (VASPs).
• The new framework, established under the Virtual Assets Act 2026, mandates strict compliance measures including anti-money laundering protocols and fund segregation.
• This shift aims to formalize the burgeoning crypto market in Pakistan, which has seen a surge in users despite previous restrictions.

• In 2018, the State Bank of Pakistan imposed a ban on banking transactions involving virtual currencies, citing risks related to money laundering and financial instability.
• Despite the ban, peer-to-peer crypto trading flourished, with an estimated 20-40 million users in Pakistan, making it the third-largest retail crypto market globally.
• The Virtual Assets Act 2026, passed in March 2026, created the Pakistan Virtual Asset Regulatory Authority (PVARA) to oversee and license VASPs, paving the way for this regulatory reversal.

The State Bank of Pakistan's decision to allow banks to open accounts for licensed virtual asset service providers marks a significant shift in the country’s approach to cryptocurrency. This policy change is rooted in the recognition that the informal crypto market has thrived despite regulatory restrictions, with estimates suggesting that around 40 million people in Pakistan are engaged in crypto activities. This represents approximately 17% of the population, highlighting a substantial demand for regulated services.

The new framework, established under the Virtual Assets Act 2026, introduces a structured approach to integrating virtual assets into the formal financial system. By mandating compliance with anti-money laundering (AML) regulations and requiring banks to conduct enhanced due diligence, the State Bank aims to mitigate risks associated with virtual currencies. This includes the segregation of client funds into PKR-denominated accounts, ensuring that banks do not directly trade or hold virtual assets themselves, which could expose them to volatility and regulatory scrutiny.

The implications of this policy are multifaceted. For one, it legitimizes the operations of licensed VASPs, allowing them to access essential banking services that were previously denied. This could lead to increased innovation within the sector, as VASPs can now operate more transparently and securely. Furthermore, the regulatory framework is expected to attract foreign investment and partnerships, as international players may view Pakistan as a more stable environment for crypto operations.

Moreover, the policy shift is likely to impact remittance flows, especially considering the significant number of Pakistani expatriates in the UAE and other regions who utilize crypto for cross-border transactions. By providing regulated on-ramps for these transactions, the new framework could reduce reliance on informal systems like hawala, enhancing compliance and potentially lowering costs for users.

In summary, the State Bank of Pakistan's decision to allow banks to service licensed VASPs is a calculated move to formalize and regulate a rapidly growing sector. It reflects a broader trend of integrating digital assets into traditional financial systems, balancing innovation with the need for oversight.

• Licensed Virtual Asset Service Providers (VASPs): They gain access to banking services, enabling smoother operations and compliance.
• Banks: They must adapt their risk profiles and compliance measures to accommodate new clients in the crypto space.
• Crypto Users: Individuals engaging in crypto transactions will benefit from more secure and regulated services.
• Expatriates: Pakistani expatriates using crypto for remittances will find lower-cost, regulated options for transferring funds.

• Banking Compliance Updates: Monitor how banks adjust their compliance frameworks to accommodate VASPs and the effectiveness of these measures.
• Market Response: Watch for shifts in the crypto market in Pakistan, including potential increases in trading volumes and new VASP registrations.
• International Partnerships: Keep an eye on collaborations between Pakistani VASPs and foreign entities, which could signal increased investment and innovation in the sector.