On April 15, 2026, the State Bank of Pakistan (SBP) officially lifted the banking ban on virtual assets that had been in place since 2018, based on Circular No. 10 issued by the Banking Policy and Regulations Department. This allows banks to re-enter a field that had previously been completely cut off, under strict compliance conditions. The core change of the circular is not to have banks directly “embrace crypto,” but to authorize them to open isolated, interest-free Pakistani Rupee (PKR) client money accounts for licensed Virtual Asset Service Providers (VASP). This highly technical design is precisely the key signal of the whole policy shift: financial innovation is no longer simply viewed as a systemic threat, but is being integrated into anti-money laundering (AML) and risk visualization frameworks to reshape boundaries. For Pakistan, the issue is no longer “whether to have virtual assets,” but rather how to restart the banking channel while bringing AML and risk control back to the forefront.

Eight-Year Ban Concluded: SBP for...

Back in 2018, under high-pressure public opinion and international compliance pressures, the SBP issued a circular requiring banks, payment institutions, and financial companies to completely cease providing services to individuals and entities related to virtual assets, including account opening, transfers, settlement, and merchant acquiring. At that time, crypto activities were considered high-risk channels for capital outflow, illegal currency exchange, and money laundering, causing local trading platforms and over-the-counter intermediaries to quickly retreat to a gray area, while banks, through a “one-size-fits-all” approach, superficially severed the flow of funds and information related to crypto. Over eight years, this ban greatly compressed the contact between the formal financial system and the virtual asset world, distancing banks from the evolution of global financial technology on both technical and business levels.

However, from 2018 to 2026, the macro pressures faced by Pakistan did not ease because of the ban. Exchange rate fluctuations, expected capital outflows, and foreign exchange reserve pressures periodically escalated, forcing regulators to re-examine how to leverage financial technology to enhance regulatory transparency and transaction traceability. Meanwhile, globally, infrastructure related to blockchain and virtual assets has accelerated development in payment, clearing, and custody, with regional competitors attracting incremental capital and technology through structured regulatory frameworks. The tension between macroeconomic uncertainty and the evolution of financial technology accumulated over eight years, making “complete prohibition” increasingly difficult to sustain in practice.

In this context, the April 15, 2026 decision by the SBP to revoke the 2018 ban is more of a realistic choice. On one hand, the newly passed Virtual Assets Act 2026 and the establishment of PVARA provide a regulatory tool for “licensed industry participants,” reducing the central bank’s challenges in directly facing a fragmented market; on the other hand, the continued implementation of international AML standards is shifting the mindset of regulators toward a “managed integration” approach rather than “simple containment.” By allowing banks to provide limited, visible payment and custody services for licensed VASP, the SBP effectively acknowledges that with a richer institutional toolbox, maintaining a complete blockade is not only costly but could also risk missing out on the discourse around emerging financial infrastructure.

Isolated, Interest-Free Accounts Launched: Banks Can...

The most critical technical arrangement in this circular is that banks are allowed to open Client Money Accounts for licensed VASPs, which must be “isolated” and “interest-free.” The term “isolated” means that the fiat currency of VASP clients must be completely distinguished from the operating funds of the VASP. Banks will view these funds at the bookkeeping and system levels as third-party custodial funds, preventing misappropriation, confusion, or misidentification as VASP assets in bankruptcy situations. “Interest-free” is designed to diminish the motivation to consider these accounts as traditional deposit liabilities by prohibiting interest payments on such accounts, thus reducing regulatory arbitrage opportunities and avoiding implicit interests connecting banks with VASP around “deposit absorption + crypto investment.”

Within this framework, the role of banks is clearly defined as providers of payment and custodial services, without the authority to directly hold or invest in any virtual assets. In other words, banks can only be responsible for PKR inflows and outflows at VASP endpoints, executing fiat settlements and safeguarding client funds while not participating in token trading, market making, or financing activities. For regulators, this arrangement of “contacting without touching the coin” keeps price fluctuations and technical risks within the VASP system, primarily controlling the risks on the banking side within traditional compliance domains.

SBP also requires banks to strengthen due diligence and strictly identify and report suspicious transactions in accordance with the Anti-Money Laundering Act of 2010. This means that once a bank chooses to provide services to a VASP, it must build a complete link in areas such as KYC, transaction monitoring, risk rating, and reporting mechanisms: it must identify whether the VASP is genuinely licensed and whether its business is within the approved scope, as well as recognizing high-risk fund flows through transaction models and triggering suspicious transaction reports when necessary. This suite of requirements significantly raises the compliance costs and technical thresholds for banks, leading them to weigh cautiously between business expansion and regulatory responsibilities.

From the design logic, isolated, interest-free accounts attempt to find a balance among three lines: first, by account isolation and custodial properties, enhance customer fund safety and regulatory visibility, allowing regulators to see the interfaces between fiat and virtual assets more clearly; second, by using “interest-free + prohibition on holding coins,” sever the risk transmission chain between banks and the crypto market at the payment level, avoiding systemic financial risks spilling over onto banks’ balance sheets; third, retaining some expansion space, allowing compliant VASPs to gradually build richer products and services on this basis without being completely locked into the shadow financial system.

From Prohibition to Inclusion: PVARA...

Timeline-wise, the Virtual Assets Act 2026 passed in March 2026 and the establishment of PVARA (Pakistan Virtual Assets Regulatory Authority) are prerequisites and political signals for the SBP's April lifting of the banking ban. By legislating the creation of a dedicated regulatory agency for virtual assets, Pakistan has institutionally clarified that virtual assets are no longer simply viewed as illegal or quasi-legal entities, but have been placed within an independent yet parallel regulatory framework regarding traditional finance, subject to licensing and ongoing supervision. This arrangement itself marks a significant turning point from “denying existence” to “acknowledging and attempting to regulate.”

Under the new system, “licensed VASP” becomes a central role. Only institutions that obtain a license issued by PVARA are qualified to legally engage in transaction matching, custody, or other virtual asset-related businesses, and on this precondition, can apply to banks to open isolated, interest-free PKR accounts. Since the briefing did not provide specific licensing targets and numbers, it is still unclear what the composition of the initial batch of licensed institutions will be, but it can be determined that “licensing” itself will become a prerequisite for navigating through formal banking channels, excluding some previously gray-area participants from the compliant ecosystem.

The division of responsibilities between the central bank and PVARA constitutes the institutional axis of this framework: SBP focuses on the stable operation of the banking system and AML requirements, responsible for regulating the financial interactions, account management, and suspicious transaction reporting between banks and VASPs; PVARA, on the other hand, directly faces industry participants, delineating business boundaries, setting capital, governance, and risk control requirements, and performing classified regulation on specific business forms. The former ensures that “where the money comes from and where it goes” is visible and traceable within the banking system, while the latter decides “who is qualified to touch coins and what business they can conduct.” The combination forms a dual-layer governance model transitioning from “comprehensive blockage” to “licensing + banking channel.”

Looking back over the past eight years, from a ban in 2018 to a dual-track regulatory framework in 2026, Pakistan’s institutional evolution path clearly reflects a change in regulatory mindset: from instinctual rejection of unknown risks to compromise within controllable boundaries with the market. Today’s policy no longer attempts to drive all virtual asset activities out of the country but instead tries to keep risks as much as possible within rules through licensing filtering + banking interface control, acknowledging that this field will exist long-term and proactively designing the rules of engagement.

Comparing with the UAE and Others: Pakistan...

In terms of regional competition, countries like the UAE have long promoted the concentration of the crypto industry through special regulatory zones and tiered licenses, forming a combination of “regulatory friendliness + comprehensive infrastructure.” Relevant jurisdictions often establish specialized free zone regulatory agencies that provide a tiered licensing system for exchanges, custodians, market makers, and service providers, allowing for a wider range of businesses under clear capital and compliance requirements, including token issuance, derivatives, and institutional custody, thereby attracting global resources to concentrate locally.

In contrast, Pakistan’s current path is clearly more conservative: Banks are prohibited from directly holding or investing in virtual assets and can only provide payment and client fund custody services under the premise that VASP has been licensed, and designs like “isolated, interest-free accounts” maximize the reduction of direct coupling with market speculation activities. This design ensures there is an “insulation layer” between the traditional financial system and the price risks of crypto assets, but also means that in terms of product innovation, capital utilization, and institutional participation, it will be difficult in the short term to compare with the high-intensity concentration effects of the UAE.

Even so, this “cautious openness” path still has real appeal for compliant exchanges, custodians, and local entrepreneurs. On one hand, institutions obtaining PVARA licenses and unlocking banking channels can gain formal status in terms of fiat inflow, outflow, and custody services, shaking off the historical burden of “gray payments” and “third-party intermediaries”; on the other hand, for local entrepreneurs, being able to engage with VASPs in their own regulatory framework using PKR has significantly reduced compliance and operational uncertainties, allowing space for compliant products aimed at retail and small-to-medium enterprises.

In the broader regional competitive landscape, Pakistan will find it difficult to replicate the “high freedom + high concentration” model of places like the UAE in a short time, but through risk-controlled limited openness, there is an opportunity to capture some industrial spillovers—especially those teams sensitive to costs and willing to develop compliant businesses in a prudent regulatory environment. If future regulations maintain stable expectations in practical operations, coupled with appropriate tax incentives and corporate law optimizations, Pakistan could gradually form a medium-intensity node aimed primarily at servicing local and surrounding markets within the South Asia-Middle East corridor.

Opportunities and Dilemmas for the Compliant Industry: Capital...

After this policy release, a concentrated voice in the market is: “This policy adjustment will enhance the AML compliance level in Pakistan’s virtual asset field,” “The new regulations provide a foundation for the industry to develop under a compliance framework.” This assessment captures the key point—lifting the ban does not mean relaxation, but rather using more refined tools to bring the funds that were originally in the shadows back into regulatory view, thereby reserving a viable path for compliant institutions to develop on.

With the restoration of banking channels, the most direct changes will appear in local fiat deposits, withdrawals, and custody capabilities. For individual and institutional users, depositing or withdrawing PKR to licensed VASPs through formal bank accounts will no longer require routing through offshore accounts or informal payment channels; for the industry ecosystem, enhanced compliant custody capabilities are a crucial prerequisite for building institutional-level products and attracting local compliant capital. In the long run, this is expected to improve the liquidity structure of the local market and lower transaction friction costs.

At the same time, the compliance costs on the VASP side will also rise significantly. Under banks' strengthened due diligence and AML monitoring requirements, VASPs must invest more resources into KYC processes, transaction behavior monitoring, on-chain data analysis, and suspicious reporting mechanisms, directly impacting their operating costs and business models. Some old models that leverage high frequency, anonymity, or high leverage as selling points may struggle to survive in the new regulatory environment, forcing institutions to shift towards greater focus on user tiered management, compliance disclosure, and risk education.

In the short term, changes in trading volume and entrepreneurial activity are more likely to show structural differences: projects with strong compliance tendencies and transparent funding sources may rapidly scale their business through banking channels, while participants heavily reliant on anonymous funds or gray arbitrage may choose to shift positions or reduce their activities locally. In terms of international cooperation, the new regulatory framework lays the institutional foundation for information exchange, joint enforcement, and cross-border payment cooperation with other jurisdictions, but there remain considerable uncertainties in terms of specific connectivity speed, technical mutual recognition, and political maneuvering. All of these will determine to what extent Pakistan can transform “institutional upgrades” into “real dividends.”

From Regulatory Testing to Long-Term Game: Pak...

In summary, the termination of the 2018 ban on virtual asset banking by the SBP and the opening of isolated, interest-free PKR accounts for licensed VASPs signify a key leap for Pakistan in transitioning from “complete denial” to “incorporating into regulation” at the institutional level. Through the dual constraints of the PVARA licensing system and banking AML requirements, virtual assets are no longer simply expelled from the traditional financial system but embedded into a more visible and controllable regulatory framework, changing the relationship between regulators and the industry from “containment and circumvention” to “rule-based competition.”

Next, several variables will determine whether this framework moves towards stability: first, the PVARA licensing pace—the speed and transparency of the licensing process will directly impact the thickness of the compliant supply side and market expectations; second, the banks’ execution strength—the extent to which banks are willing to allocate resources to build service capacity between compliance costs and business prospects will decide to what degree the new regulations translate into real channels; third, the requirements for international collaboration—under the pressure of multilateral mechanisms like FATF, how Pakistan achieves substantial arrangements with regulatory agencies of other countries regarding information sharing and law enforcement cooperation will affect its credibility and position in the global virtual asset landscape.

If a predictable balance game can gradually take shape between regulation and industry in practice—where regulation does not repeatedly swing due to single events and the industry accepts compliance as a part of long-term cost structure—Pakistan has the opportunity to build a differentiated crypto development path in the medium to long term: one that does not resemble a completely open model trying to rapidly “siphon resources,” nor does it revert to the old road of simple blockage that hands over the innovation space. At the core of that path is not to let virtual assets dominate the financial system, but rather to utilize new technologies to reshape critical infrastructures of payment, remittance, and digital asset custody in ways that better align with the real needs of an emerging economy caught between globalization and decentralization.

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