SECP bans Ponzi, pyramid and deceptive MLM schemes under new regulations

The Securities and Exchange Commission of Pakistan (SECP) has notified new regulations to prohibit Ponzi schemes, pyramid schemes, deceptive multi-level marketing (MLM) and unlawful referral marketing. The Companies (Prohibition of Unlawful Activities) Regulations, 2026 set out criteria for identifying such schemes.

The regulations apply to all companies, including foreign companies, and cover schemes run through physical and digital channels such as websites, mobile applications and social media. They also extend to existing schemes that show the characteristics of unlawful activities. Companies are barred from promoting, conducting or facilitating such activities.

According to the reports, prohibited practices include earning income mainly from recruitment, paying earlier investors with money from new investors, and promising unrealistic or guaranteed returns. Excessive joining fees or required inventory purchases, and concealing how investor funds are used, are also covered.

The rules further address products with little or no genuine market demand, misleading income or product claims, and inadequate refund or buy-back arrangements. The sale of unregistered, unapproved or illegal goods is included as well. Pyramid schemes with unclear contract terms, unreasonable purchase requirements or multiple participation positions designed to generate recruitment rewards are prohibited.

Bona fide direct selling that is based mainly on sales to end consumers remains permissible under the regulations.

Companies, directors and officers involved in prohibited activities may face penalties under Section 512(2) of the Companies Act, 2017. Other enforcement, including winding up under Section 301, may also follow. The SECP said the regulations were finalised after consultation with professional bodies, business organisations and other stakeholders.

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 commission advised the public to be cautious of schemes promising unusually high or guaranteed returns, especially those that reward recruitment, and to verify a company's legitimacy and regulatory status before investing.