New rules prohibit deceptive MLM and unlawful referral marketing schemes across physical and digital platforms, with penalties for companies, directors and officers.
ISLAMABAD, November 3, 2026: The Securities and Exchange Commission of Pakistan (SECP) has introduced new regulations prohibiting Ponzi schemes, pyramid schemes, deceptive multi-level marketing (MLM) and unlawful referral marketing to protect investors and the general public from financial exploitation.
On Tuesday, the regulator notified the Companies (Prohibition of Unlawful Activities) Regulations, 2026, establishing clear criteria for identifying and preventing such activities.
The regulations apply to all companies, including foreign companies, and cover schemes operating through physical and digital channels, including websites, mobile applications and social media platforms.
Under the new rules, prohibited activities include generating income primarily through recruiting new participants rather than selling genuine products, using money from new investors to pay earlier investors and promising unrealistic or guaranteed returns.
The regulations also prohibit excessive joining fees, compulsory inventory purchases, misleading income claims, concealment of investor fund utilisation and schemes involving products with little or no genuine market demand.
Companies cannot promote arrangements involving unclear contractual terms, unreasonable purchase requirements or multiple participation positions designed to generate recruitment-based rewards.
However, legitimate direct-selling businesses remain permissible where compensation is primarily generated through actual sales to end consumers.
The regulations also cover existing schemes displaying characteristics of unlawful activities, regardless of whether they operate through traditional or digital platforms.
Companies found violating the rules may face penalties under Section 512(2) of the Companies Act, 2017. Directors and officers may also face enforcement action, including proceedings for winding up under Section 301.
SECP Chairman Dr Kabir Ahmed Sidhu said the regulations would strengthen safeguards against deceptive business practices and financial exploitation while promoting legitimate commercial activities.
The regulations were finalised following consultations with professional bodies, business organisations and other relevant stakeholders.
The SECP has advised the public to remain cautious about investment schemes promising unusually high or guaranteed returns, particularly those offering financial rewards for recruiting new participants. Investors have also been urged to verify company credentials before committing their money.