The Securities and Exchange Commission of Pakistan (SECP) has issued a draft set of regulations aimed at prohibiting multi-level marketing (MLM), referral marketing, pyramid schemes, and Ponzi schemes, signaling a decisive move to curb fraudulent and deceptive business practices across the country. The draft regulations were published through Statutory Notification S.R.O. 2440(I)/2025 on December 10, 2025, and have been released for public information and feedback.
Issued under the powers conferred by subsection (1) of section 512 read with Explanation I of section 301 of the Companies Act, 2017, the proposed Companies (Multi-Level Marketing, Referral Marketing, Pyramid & Ponzi Schemes) Regulations, 2025 are intended to apply to all companies operating in Pakistan, including foreign companies. The SECP has invited objections or suggestions from stakeholders within fourteen days of publication in the Official Gazette, after which the feedback will be considered before finalization.
According to the draft, the regulations will take effect immediately once enforced and will override any provisions contained in a company’s memorandum or articles of association, contractual arrangements, or resolutions passed by management or shareholders. This provision is designed to prevent companies from using internal documentation to bypass regulatory restrictions.
The draft regulations provide detailed definitions of unlawful activities, explicitly categorizing MLM, referral marketing, pyramid schemes, and Ponzi schemes as prohibited business models. Participants are defined as individuals who join sales or marketing structures with the expectation of earning benefits or commissions, a definition that places responsibility on companies for the structure and conduct of such schemes.
Under the proposed framework, multi-level marketing is prohibited where income or benefits are derived primarily from the recruitment of new members rather than the genuine sale of products to end consumers. The regulations also prohibit schemes where products lack real market demand, are merely incidental to recruitment, or are unregistered, unapproved, or illegally imported. Practices such as high joining fees, forced inventory purchases, exaggerated income claims, and the absence of fair refund or buyback policies have been explicitly identified as indicators of unlawful activity.
Ponzi schemes have been clearly defined as arrangements that pay returns to earlier investors using funds from new investors instead of legitimate business profits. The draft bans schemes offering high or guaranteed returns with minimal risk, lacking identifiable underlying assets or business activity, or concealing information about the use of investor funds.
Similarly, pyramid schemes are prohibited where participants are rewarded mainly for recruiting others rather than selling genuine products. The draft regulations also address concerns related to unclear contractual terms, excessive product purchase requirements, lack of refund policies, and the use of multiple participation positions to generate recruitment-based rewards.
Referral marketing has also been brought under regulatory scrutiny. The draft regulations prohibit schemes that offer commissions or rewards primarily for referring new participants and that display characteristics of pyramid or Ponzi structures. This provision is expected to impact a wide range of informal referral-based business models that have gained traction through social media and digital platforms.
The SECP has placed a clear obligation on companies to ensure strict compliance with the proposed regulations while designing, operating, or promoting any business scheme. In addition, the general public has been encouraged to report any unlawful activity falling within the scope of the regulations, reinforcing consumer protection and market vigilance.
Penalties outlined in the draft regulations are significant. Any company found to be engaged in prohibited activities may be wound up under section 301 of the Companies Act, 2017. Furthermore, companies, directors, and officers who fail to comply with or contravene the regulations may face penalties under subsection (2) of section 512 of the Act, which includes fines and other enforcement actions.
The issuance of these draft regulations reflects growing regulatory concern over the proliferation of fraudulent investment and marketing schemes that exploit consumers under the guise of entrepreneurship and quick financial returns. By providing detailed definitions and clear prohibitions, the SECP aims to strengthen enforcement, enhance transparency, and protect investors and participants from financial harm.
Stakeholders across the corporate, legal, and financial sectors are now expected to review the draft regulations and submit feedback within the stipulated period. Once finalized, the regulations are likely to reshape how promotional and sales-based business models operate in Pakistan, establishing clearer boundaries between legitimate direct selling activities and unlawful schemes.
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