SECP notifies rules against Ponzi schemes

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has notified the Companies (Prohibition of Unlawful Activities) Regulations, 2026, setting criteria to define and prohibit Ponzi schemes, pyramid schemes, deceptive multi-level marketing and unlawful referral marketing. The regulations apply to all companies, including foreign companies, and cover schemes operating through physical and digital channels, including websites, mobile applications and social media. They identify prohibited practices including deriving income primarily through recruitment rather than genuine product sales, using funds from new investors to pay earlier ones, promising unrealistic or guaranteed returns, imposing excessive joining fees and concealing the use of investor funds. They also cover schemes involving products with little genuine market demand, misleading claims, inadequate refund or buy-back arrangements and the sale of unregistered or illegal goods. Pyramid schemes with unclear terms, unreasonable purchase requirements or multiple positions designed to generate recruitment-based rewards are prohibited. Bona fide direct selling, where compensation is primarily derived from actual sales to end consumers, remains permissible. The regulations extend to existing schemes exhibiting unlawful characteristics, whether physical or digital, and bar companies from promoting or facilitating them. Violations may attract penalties against companies, directors and officers.