The Securities and Exchange Commission of Pakistan (SECP) on Wednesday formally declared Multi-Level Marketing (MLM), referral marketing, Pyramid, and Ponzi schemes illegal across the country. The regulatory body has prohibited companies from engaging in such unlawful activities, emphasizing strict enforcement measures to protect investors and the general public.
The SECP issued S.R.O. 2440 (I)/2025, introducing the draft Companies (Multi-Level Marketing, Referral Marketing, and Pyramid & Ponzi Schemes) Regulations, 2025. The commission has made it clear that any company found participating in these prohibited activities may be subject to winding up and other legal consequences.
Under the new regulations, MLM schemes are strictly banned. Companies are prohibited from promoting or conducting schemes where income is primarily derived from recruiting new members rather than genuine sales of products or services to end consumers. The rules also target companies that offer products merely as a façade or where there is little to no evidence of bona fide product sales.
Additionally, companies must maintain a clear, accessible, and equitable policy for the repurchase, refund, or return of unsold products. Products sold under MLM frameworks must be registered, approved, and legally imported. The regulations explicitly clarify that legitimate direct selling activities remain permissible, provided that compensation is primarily based on actual product sales to end consumers.
Ponzi schemes are also prohibited under the new framework. Companies are forbidden from paying returns to earlier investors using funds contributed by new investors rather than legitimate profits from commercial activities. The SECP has highlighted that any scheme offering high, fixed, or guaranteed returns with minimal or no identifiable risk is considered illegal.
The regulations further emphasize that companies must have a verifiable underlying business, asset, or revenue-generating activity. Any attempt to conceal, misrepresent, or withhold information regarding the deployment or use of investor funds is strictly forbidden.
The SECP’s move comes as part of a broader initiative to safeguard investors, enhance transparency in financial markets, and curb the proliferation of fraudulent schemes that exploit unsuspecting members of the public. Companies and stakeholders are urged to comply with the new regulations and ensure that their operations remain lawful and transparent.
By taking decisive action against MLM, Pyramid, Ponzi, and referral marketing schemes, the SECP aims to strengthen investor confidence, reduce financial risks, and promote a safe and regulated business environment in Pakistan.
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