SECP mulls framework on digital financial assets

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has initiated the process of formulating a regulatory framework to govern trading of digital financial assets, also known as crypto currency, in the country, it was learnt on Wednesday.

The SECP said the digital asset landscape has matured significantly and momentum is now being fueled by innovation in areas such as custody, settlement, and post-trade – which remains critical functions in regulated financial markets.

“The SECP will continue to engage with market participants and welcome industry feedback in deciding how to regulate the digital assets domain,” it said in a report. “This area has the potential to drive major improvements in efficiency and cost-reduction for the end-users by combining trading, settlement, and custody services into one seamless service offering.”

Digital assets demand innovative regulatory measures and approaches by the regulators across the world. This could only be possible by initiation of a new era that re-invents regulatory regime/measures as they are known to the regulators globally.

The report outlines the concepts applicable for a nascent digital finance industry in Pakistan, examines regulatory frameworks in place in other jurisdictions and potential approaches to regulate digital assets in the country.

This report focuses exclusively on asset-backed security tokens/digital assets and does not include any form of virtual/cryptocurrency or central bank digital currency.

“One of the key advantages of digital assets are the ability to fractionalize each asset. Digital assets can be broken into more affordable and transferable units that create an opportunity for greater liquidity and investor diversity,” it said. “Fractional ownership and trading of digital assets in secondary markets unlock liquidity in previously illiquid markets, creating entirely new tradable assets – such as real estate tokens – and enabling a more standardized form of trading for currently illiquid assets, such as corporate bonds.”

Moreover, the barriers to issuing an asset or security are significantly lowered opening up greater opportunity for smaller issuers while existing issuers benefit from new forms of securities, said the SECP.