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The Securities and Exchange Commission of Pakistan (SECP) has made the Companies (Prohibition of Unlawful Activities) Regulations, 2026 by S.R.O. 1976(I)/2026, dated 21 October 2026, under section 512(1) of the Companies Act, 2017. The regulations came into force at once. SECP had published them in draft as S.R.O. 2440(I)/2025 of 10 December 2025.
In short: no company, including a foreign company, may promote or carry on, or help to promote or carry on, multi-level marketing (MLM), pyramid, Ponzi or referral marketing schemes as the regulations define them. This applies whether the scheme runs physically or through websites, apps or social media, and whatever the company's memorandum, articles or contracts say. Genuine direct selling, where pay comes mainly from product sales to end consumers, is not restricted. The company, its directors and other officers can be penalised, and the company can face winding up.
Who and what the regulations cover
| Point | What the regulations say |
|---|---|
| Companies | All companies, including foreign companies |
| Channels | Any scheme or business, physical or digital: online, electronic, social media, mobile apps, websites or any other platform |
| Existing schemes | Covered if they show the characteristics of an unlawful activity |
| Company documents | The regulations override the memorandum, articles, contracts and resolutions |
| Exception | Bona fide direct selling where pay comes mainly from actual product sales to end consumers |
| In force | At once (notification dated 21 October 2026) |
The four prohibited schemes
For each scheme the regulations list features, "including but not limited to", and bar a company from carrying on any one or more of them, so a scheme need not show every feature to be caught.
Multi-level marketing (regulation 5)
- Income or benefits come mainly from recruiting new members rather than genuine sales to end consumers
- Little or no evidence of real product sales to end users, or products are incidental or absent
- Goods lack reasonable market demand and only disguise recruitment-driven rewards
- High joining fees, subscriptions or payments unrelated to product cost, used to pay earlier participants
- Participants are made to buy large or unreasonable stock to earn commission, keep their rank or stay in
- Exaggerated claims about income, returns or how well the products work
- No clear, accessible and fair policy to buy back, refund or accept returns of unsold products
- Products that are unregistered, unapproved, illegally imported or smuggled
Ponzi schemes (regulation 6)
- Returns to earlier investors are paid from new investors' money rather than business profits
- High, fixed or guaranteed returns with little or no identifiable risk
- No identifiable underlying business, asset or revenue-generating activity
- Information about how investors' money is used is hidden, misrepresented or withheld
Pyramid schemes (regulation 7)
- Participants are rewarded mainly for recruiting others rather than for selling genuine products
- No clear written agreement setting out participants' rights and obligations
- Excessive or unreasonable product purchases are required to join or stay in
- No fair, transparent or timely refund or buy-back policy for unsold products
- Multiple positions per participant are allowed or encouraged to earn more recruitment rewards
Referral marketing (regulation 8)
A company must not offer or pay commissions, rewards or benefits mainly for referring participants to schemes that show the characteristics of MLM, pyramid or Ponzi schemes.
Penalties
Under regulation 9, anyone who fails to comply with or contravenes the regulations, including the company, its directors and other officers, is punishable under section 512(2) of the Companies Act, 2017. That section allows a penalty of up to Rs 5 million and, for a continuing contravention, up to Rs 100,000 for each day it continues. This is without prejudice to other action under the Act, including winding up under section 301, which allows the Court to wind up a company that is carrying on unlawful or fraudulent activities.
What businesses should check now
- If you sell through distributors, agents or affiliates, confirm that their pay comes mainly from product sales to end consumers, not from recruitment
- Check that your products have real market demand and are registered or approved where the law requires
- Remove any requirement to buy large amounts of stock to earn commission or keep a rank
- Publish a clear and fair buy-back, refund and returns policy for unsold products
- Put a written agreement in place with every participant, setting out their rights and obligations
- Review income claims in marketing, including on social media, and remove any you cannot support
- Review referral, affiliate and app-based reward programmes against regulation 8
- Never promise fixed or guaranteed returns, and be open about how investors' money is used
- Record the board's review: directors and officers can be penalised personally
How Veridian can help
Our corporate law and secretarial and corporate advisory teams review distribution and commission plans, participant agreements and refund policies against the new regulations, and help the board document its review. Where you need a formal legal opinion, we work alongside your legal adviser. Book a consultation if you run a direct selling, referral or affiliate model in Pakistan.
Official sources
Frequently asked questions
Has SECP banned direct selling in Pakistan?
No. The Companies (Prohibition of Unlawful Activities) Regulations, 2026 do not restrict bona fide direct selling where pay comes mainly from actual product sales to end consumers. They prohibit multi-level marketing, pyramid, Ponzi and referral schemes with the features the regulations list.
Do the regulations apply to online and app-based schemes?
Yes. They cover any scheme or business carried out physically or through digital, online, social media, mobile app, website or other technological platforms if it shows the characteristics of an unlawful activity.
What is the penalty for breaching the regulations?
The company, its directors and other officers are punishable under section 512(2) of the Companies Act, 2017, which allows a penalty of up to Rs 5 million and up to Rs 100,000 for each day a contravention continues. SECP can also take other action under the Act, including seeking winding up under section 301.
This guide is general information based on the law as we understand it on the date shown, not advice for your situation. Tax rules change often — please speak to us before acting on it. See our disclaimer.