The Securities and Exchange Commission of Pakistan (SECP) has announced the Companies (Prohibition of Unlawful Activities) Regulations, 2026, which prohibit Ponzi schemes, pyramid schemes, deceptive multi-level marketing (MLM) and unlawful referral marketing.
The regulations cover schemes run through physical and digital channels, including websites, mobile applications and social media. They apply to all businesses, including overseas firms.
Practices banned under the new regulations
According to the regulations, businesses may not earn money mainly from recruitment rather than actual product sales. They are also barred from paying earlier investors with money from new investors, promising unrealistic or guaranteed returns, and charging excessive joining fees or inventory purchases. Concealing how investor funds are used is also forbidden.
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The rules also target schemes built around products with little or no genuine market demand, misleading income or product claims, weak refund or buy-back arrangements, and the sale of unregistered or illegal goods. Pyramid schemes with unclear contract terms, unreasonable purchase requirements or multiple participation positions designed to reward recruitment are prohibited too. Bona fide direct selling, where compensation comes mainly from sales to end consumers, remains permitted.
Penalties for companies, directors and officers
The regulations extend to existing schemes that show characteristics of unlawful activity, whether they operate online or offline. Companies are barred from promoting, conducting or facilitating such activities.
Violations may attract penalties against companies, directors and officers under section 512(2) of the Companies Act, 2017. Other enforcement action, including winding up under section 301, may also follow.
SECP urges caution over high-return investment offers
SECP Chairman Dr. Kabir Ahmed Sidhu said, “These Regulations strengthen safeguards against deceptive business practices and financial exploitation. Our objective is to promote legitimate business activities and protect the public, including from unlawful schemes operating through digital platforms.” The regulations were finalised after consultation with business associations, professional bodies and other relevant parties.
The SECP encourages the public to proceed with caution when offered exceptionally high or guaranteed returns, especially those that reward recruiting new members. Investors should confirm that a business is valid before putting money in.
