The Securities and Exchange Commission of Pakistan has notified the Companies (Prohibition of Unlawful Activities) Regulations, 2026, bringing in a set of pyramid scheme regulations that also cover Ponzi arrangements, deceptive multi-level marketing and unlawful referral marketing.
The rules apply to all companies, including foreign ones, and reach physical and digital platforms alike — websites, apps and social media. “Our objective is to promote legitimate business activities and protect the public,” SECP Chairman Dr Kabir Ahmed Sidhu said.
How the regulations describe each scheme
Rather than relying on labels, the framework sets out characteristics. A Ponzi-type scheme pays early participants from money put in by newer ones, promises unrealistic or guaranteed returns, and does not tell investors how their funds are used.
- Pyramid-type: earnings come mainly from recruiting members rather than selling products
- Excessive joining fees and mandatory inventory purchases
- Unclear contract terms and multiple tiers that reward recruitment
- Deceptive MLM: products with little real demand, misleading income or product claims
- Weak refund or buy-back terms, or unregistered and illegal goods
Legitimate direct selling remains permitted where most compensation comes from sales to end consumers. That single distinction — revenue from customers versus revenue from recruits — is the line the whole framework turns on, and it is the right one, because it is the test that separates a sales business from a transfer of money between participants.
The enforcement route
Violations can bring penalties against companies, directors and officers under Section 512(2) of the Companies Act, 2017, and the Commission can pursue other enforcement including winding up a company under Section 301.
No penalty amounts have been specified in the notification as reported, and no effective date was given. The regulations were finalised after consultation with professional bodies, business organisations and other stakeholders.
Winding up is the significant power here. It allows the Commission to shut a company down rather than fine it, which matters for schemes whose assets are in the process of being distributed to earlier participants — a penalty collected after the money has gone is worth little.
Related: SECP opens SE Fruits IPO probe and confirms investors have been refunded
The jurisdictional gap nobody has addressed
The regulations are made under the Companies Act and apply to companies. A substantial share of the schemes they describe are not run through companies at all.
A WhatsApp group promising guaranteed monthly returns, an individual taking deposits on a referral basis, or an operation run from outside Pakistan through an app has no registered Pakistani entity for the Commission to proceed against. Extending the rules to foreign companies helps where a foreign company exists; it does nothing where nobody has incorporated anything.
That is not a criticism of the drafting so much as a description of its limits. Prosecuting unincorporated fraud sits with the criminal law and the National Cyber Crime Investigation Agency, and the regulations do not describe how referrals between the two would work.
Defining a thing is not detecting it
These schemes were already unlawful in substance before this notification. What the regulations add is a clear definitional framework, which removes the argument that a particular arrangement is merely aggressive marketing rather than a pyramid.
Detection is the harder half, and the Commission has not said what capacity it is bringing to it. The Competition Commission has deployed AI-assisted analysis and web scraping to flag deceptive marketing claims in its own domain; nothing comparable has been described here, and the schemes in question advertise publicly on exactly the platforms such tools monitor.
The Commission’s accompanying advice — be cautious of unusually high or guaranteed returns, especially where recruitment is rewarded, and verify a company’s legitimacy before investing — places the burden on the investor, which is sound guidance and also an admission about enforcement reach.
The timing is not coincidental
Schemes of this kind surface in predictable conditions, and Pakistan currently has all of them. Inflation has averaged 10.05 percent across the first four months of the fiscal year against 4.79 percent a year earlier, which erodes savings and makes a guaranteed monthly return look necessary rather than suspicious.
At the same time the formal alternatives have become harder to reach. The policy rate at 12 percent raises deposit returns but also the cost of credit, and the stock market has had a difficult autumn. Households looking for a real return on savings face a narrow menu.
Add near-universal smartphone ownership and a population among the world’s heaviest users of social platforms, and the distribution problem that once limited these schemes has disappeared. The regulations are arriving into the most favourable environment for the conduct they prohibit.
A busy month for the regulator
This follows the Commission’s review of the SE Fruits IPO, where material discrepancies in a prospectus passed five checkpoints before Rs1.2 billion was raised and subsequently refunded, and where the Commission itself argued that the Audit Oversight Board needs effective inspection powers, technical staff and stable funding.
It also arrives in the same fortnight that the cabinet approved 170 amendments to the Companies Act within a programme to remove 70 to 75 percent of regulations judged unnecessary. New prohibitions notified under a statute being simultaneously deregulated is not a contradiction, but it does mean the Commission’s rulebook is moving in two directions at once.
What would demonstrate that this framework has teeth is the first winding-up petition filed under it. Until then it is a well-drawn definition awaiting a case.
