Pakistan's central bank, the State Bank of Pakistan, has officially reversed its long-standing prohibition on banking services for cryptocurrency firms, signaling a significant shift in the nation's financial policy. This landmark decision permits regulated banks to establish accounts for licensed virtual asset service providers (VASPs) within a newly established legal framework. The move, communicated via a circular by the State Bank of Pakistan, follows the enactment of the Virtual Assets Act 2026, marking Pakistan's inaugural structured endeavor to integrate digital asset businesses into its formal financial system.

Bilal bin Saqib, chairman of the Pakistan Virtual Assets Regulatory Authority (PVARA), emphasized the importance of this development, stating that it represents a crucial foundational step in formalizing virtual assets within the country's financial landscape. Under the stipulations of the new regulations, banks are authorized to offer fundamental financial services to crypto firms, provided these entities possess valid licenses from PVARA. To mitigate financial risks and ensure adherence to stringent anti-money laundering (AML) and counter-terrorism financing (CTF) standards, comprehensive safeguards have been implemented.

Banks are now mandated to conduct thorough due diligence, maintain up-to-date risk profiles for their VASP clients, and report any suspicious transactions to regulatory bodies. Furthermore, it is a strict requirement that client funds be held in segregated, non-interest-bearing accounts, denominated exclusively in Pakistani rupees. The commingling of customer funds with company funds is expressly forbidden to protect client assets and maintain financial transparency.

Despite this integration, the central bank has imposed clear restrictions on direct involvement with digital assets. Banks are explicitly barred from investing in, trading, or holding cryptocurrencies, whether using their own capital or customer deposits. Their operational scope is strictly confined to facilitating payment rails and the custody of fiat funds that are directly associated with licensed crypto activities, ensuring that the financial system remains insulated from the volatility of virtual assets.

This policy represents a sharp departure from Pakistan's previous stance, specifically its 2018 policy, which effectively severed crypto firms from the traditional banking system and impeded the growth of the nascent industry. With the new framework now in place, authorities are actively working to position Pakistan as a regulated hub for digital asset innovation. The country has already taken proactive steps to attract global crypto players, including signing a memorandum of understanding with Binance in December to explore tokenization initiatives, potentially involving assets valued up to $2 billion. Additionally, initial regulatory clearances have been granted to both Binance and HTX, indicating a welcoming environment for established firms.

In parallel, Pakistan has been investigating blockchain-based financial infrastructure, engaging in discussions with an affiliate of World Liberty Financial. These discussions include the potential integration of stablecoins for facilitating cross-border payments, further showcasing the nation's commitment to modernizing its financial ecosystem through digital advancements.