SECP has proposed new regulations to ban MLM, pyramid and Ponzi schemes across Pakistan, aiming to protect investors and consumers from fraudulent business models.
Draft Regulations to Curb Fraudulent Schemes
The Securities and Exchange Commission of Pakistan (SECP) has moved to clamp down on Multi-Level Marketing (MLM), referral marketing, and pyramid and Ponzi schemes operating in the country. Through S.R.O. 2440(I)/2025, the regulator has introduced the draft Companies (Multi-Level Marketing, Referral Marketing, Pyramid & Ponzi Schemes) Regulations, 2025.
Under these proposed rules, any company found involved in unlawful activities covered by the regulations could face winding up. The move reflects growing concern over schemes that promise quick returns but often leave ordinary investors and consumers facing heavy losses.
Key Restrictions on MLM and Referral Marketing
The draft regulations take direct aim at business models where income depends mainly on recruitment rather than real product sales. No company will be allowed to promote or run any scheme in which earnings are derived primarily from adding new members instead of selling genuine goods to end consumers.
SECP has highlighted that schemes with little or no evidence of bona fide product sales, or where products are merely symbolic or absent altogether, will be treated as unlawful. Similarly, companies will be barred from operating where there is no clear policy for repurchasing, refunding or returning unsold products, or where the products being sold are unregistered, unapproved, illegally imported or smuggled.
However, the regulations clarify that bona fide direct selling activities are not being targeted, as long as compensation is primarily based on actual product sales to genuine end consumers. This distinction is important for legitimate direct selling companies that operate with transparent policies and real demand for their products.
How the Rules Define and Prohibit Ponzi Schemes
A separate section of the draft focuses on Ponzi schemes, which are banned outright. SECP defines these schemes as those that pay returns to earlier investors using money from new investors, rather than from profits generated by real business or trading activity.
Companies will be prohibited from offering high, fixed or guaranteed returns where there is little or no identifiable risk, or where no clear underlying business, asset or revenue-generating activity exists. Any scheme that misrepresents, hides or withholds information about how investor funds are used will also fall under the ban.
These safeguards are meant to address cases where people are lured into investing based on promises of unrealistic profits, only to discover later that the scheme collapses once new money stops coming in.
Ban on Classic Pyramid Structures and Abusive Practices
Pyramid schemes, which often disguise themselves as networking or referral programmes, are also explicitly prohibited. Under the draft regulations, no company may run a scheme that rewards participants mainly for recruiting others rather than selling real products.
The SECP has identified several warning signs, including the absence of a clear written agreement, excessive or unreasonable product purchase requirements as a condition to join, and weak or non-existent refund and buyback arrangements. Allowing multiple participation positions purely to generate extra recruitment-based rewards is another red flag that will not be tolerated.
For referral marketing, the rules state that schemes offering commissions or rewards primarily for bringing in new participants, and which show any features of a pyramid or Ponzi scheme, will be treated as unlawful business.
Protecting Consumers and Encouraging Public Reporting
SECP says the overall purpose of the new framework is to promote responsible business conduct and protect both consumers and participants from exploitation. Companies designing or promoting any scheme will be required to ensure strict compliance with the regulations and to avoid models that depend on endless recruitment or misrepresentation.
The regulator has also called on the general public to remain alert and report any suspicious activity that appears to fall under these prohibited categories. By involving citizens and enforcing strong rules against MLM, pyramid and Ponzi structures, SECP aims to clean up the market and channel savings towards genuine, productive investments instead of fraudulent promises of easy money.
