The Virtual Assets Act 2026 (VAA) is a well-crafted law that goes to the heart of legal issues in virtual asset dealings. Plain language and addressing fundamental issues of the digital market are two features that make it accessible. It is important to note that, unlike usual practice, this law is not a verbatim copy of the law applicable in any other jurisdiction in Pakistan.

Although there is widespread criticism of the VAA 2026 being introduced under the influence of the Financial Action Task Force, the Act certainly addresses money laundering-related issues through a separate section in Chapter 8. It is legislation that introduces compliance-based regulation to ensure the protected entry of digital assets within Pakistan’s financial system.

The opening of Pakistan’s financial market is well addressed in the law. Licensing requirements, the setting up of the Pakistan Virtual Assets Regulatory Authority (PVARA), reference to Shariah-compliant assets, and provision of sandboxes to ensure smooth entry have been well structured.

While the VAA provides a strong foundational framework, its long-term effectiveness will depend on its evolution towards comprehensive market regulation

Careful listing of all the relevant regulators in section 17 for the purpose of coordinated regulation and supervision is a well-thought-out rule. Combined with the use of mutual legal assistance among international stakeholders, this law produces a comprehensive and well-knit compliance-based regulation.

Regulatory gaps and unresolved issues

Certain challenges remain, such as facilitation of exchanges, prevention of active wrongdoing such as Ponzi schemes and fraud, and prevention of speculative activities. There is a need for clarity regarding disclosure requirements in the VAA 2026 and the Companies Act 2017. Similarly, inside information and insider trading, as per section 25 of the VAA 2026 and the Securities Act, need to be reconciled.

Since the law ensures the smooth entry of digital assets into the country’s financial system, the later stages of regulation, supervision, and enforcement of the digital assets market (DAM) are missing. For instance, virtual asset exchanges, their licensing, and operations have not been addressed in sufficient operational detail in the law. Moreover, offences like fraud and Ponzi schemes, which are prevalent in the global DAM, have not been defined, declared, and made punishable.

Speculation is one of the major concerns among developing nations regarding the supervision of the DAM, but that has not been adequately dealt with. Regulation of actors such as licensees, issuers, and sponsors is a major focus of the law; however, market behaviour and behavioural finance have not been considered within the market. A nation such as Pakistan, which comprises a majority of the population that is not literate and unaware of the hazards of speculative activities, needs protection from such markets. This protection is not evident in this law.

Shariah governance and need for reform

The inclusion of Shariah governance is a timely insertion, given that the State Bank is actively seeking to convert the entire banking system in Pakistan into Shariah-compliant banks. However, there is a need to add clarity and detailed rules about what would constitute Shariah-compliant digital assets.

Finally, Pakistan’s VAA 2026 is quite different from the European Union (EU), UK, US, and India frameworks. DAM regulatory frameworks in all these jurisdictions are known to achieve various objectives. Markets in Crypto-Assets Regulation, enacted in the EU, is the most comprehensive law that provides an exclusively dedicated statute to regulate the digital assets market.

US law is focused on the regulation of the structure of digital assets with fragmented regulators, whereas the UK’s Financial Conduct Authority has accommodated the digital assets market within its existing framework of the Financial Services and Markets Act 2000. India has largely dedicated its regulations to control anti-money laundering activities and promote taxation of the digital assets market.

A comparative analysis will be helpful to identify and include changes in the VAA 2026 to make it comprehensive.

While the Virtual Assets Act 2026 represents a significant step towards the formal recognition and regulation of the DAM in Pakistan, it reflects an imbalance between entry regulation and market conduct regulation.

The comparative analysis demonstrates that more mature jurisdictions have moved beyond licensing models to incorporate detailed conduct rules, investor protection mechanisms, and market abuse regimes. In contrast, the VAA 2026 remains primarily compliance-oriented, with limited engagement with the behavioural and systemic risks inherent in digital asset markets.

Therefore, while the Act provides a strong foundational framework, its long-term effectiveness will depend on its evolution towards comprehensive market regulation. This would require clearer rules on market conduct, enhanced investor protection measures, greater doctrinal clarity on Shariah-compliant digital assets, and stronger mechanisms to address speculative risks.

The writer is an assistant professor at the Shaikh Ahmed Hassan School of Law, Lums

Published in Dawn, The Business and Finance Weekly, June 1st, 2026