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Business

April 17, 2018

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SBP gets thumbs up on action against cryptocurrencies

SBP gets thumbs up on action against cryptocurrencies

Karachi: US credit rating agency Moody’s Investors Service on Monday said the central bank’s latest restriction on banks to deal in virtual currencies would protect them from monetary and other risks.

“The prohibition is credit positive because it shields Pakistan’s banks and other financial service entities from the significant risks that virtual or cryptocurrencies pose,” Moody’s said in a statement.

Early this month, the State Bank of Pakistan (SBP) prohibited banks, payment system operators and service providers from dealing in virtual currencies or facilitating customers’ transactions in them. SBP has not offered any authorisation or licence to individuals or entities to engage in any activity (issuance, sale, purchase, exchange or investment) in virtual currencies.

US credit rating agency said Pakistani banks are generally inactive in the area of virtual currencies. “There is no international consensus yet on how to best address the regulatory challenges associated with virtual currencies, and the SBP’s actions are in line with those taken by other regulators worldwide,” it added.

The SBP advised banks not to facilitate in any way their customers transacting in virtual currencies. The prohibition applies to the full spectrum of financial services they offer, including the use of bank transfers, credit cards or consumer loans that customers can use to invest in virtual currencies.

The central bank warned the public, in line with other authorities such as the European Banking Authority, against the use of virtual currencies and cited the risks: significant price volatility tied to speculative activity; threat of failure or closure of cryptocurrency exchanges owing to various reasons including law enforcement actions; and susceptibility of cryptocurrency exchanges to hacking/security compromises.

The central bank acknowledged the increased risk for illegal activities through the high degree of anonymity that virtual currencies offer, which makes tracking and documenting these transactions difficult. It also warned that there could be legal repercussions in cases where cryptocurrencies are used to transfer funds outside Pakistan.

Government is taking actions to prevent terrorism financing and money-laundering offences. “We note that the Financial Action Task Force, an intergovernmental organisation combatting money laundering and terrorist financing, will include Pakistan on its watch list of countries with deficiencies in anti-money laundering/terrorism financing measures this June,” Moody’s said.

The SBP is not against the blockchain technology behind virtual currencies, and has taken measures to enhance its supervisory capacity to allow for the use of new technologies in the future.

“The (Pakistan) authorities welcome the entry of financial technology companies in the market, especially in the payments system sector, as part of Pakistan’s national financial inclusion strategy, which aims to bring more people in the formal financial sector,” Moody’s added.

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