SECP to Prohibit Multi-Level Marketing, Pyramid and Ponzi Schemes Nationwide. The Securities and Exchange Commission of Pakistan has proposed strict new regulations to ban multi-level marketing (MLM), referral marketing, pyramid schemes, and Ponzi schemes in Pakistan. The move aims to protect consumers and investors from deceptive business models that rely on recruitment-based income rather than genuine commercial activity.
New Draft Regulations Issued
To implement the proposed ban, the SECP has issued S.R.O. 2440(I)/2025, introducing the draft Companies (Multi-Level Marketing, Referral Marketing, Pyramid & Ponzi Schemes) Regulations, 2025. Under these regulations, any company found engaged in prohibited activities may face winding up and legal action.
Ban on Recruitment-Based MLM Models
According to the draft rules, no company will be allowed to promote or operate a scheme where income or benefits are mainly earned through recruiting new members instead of selling real products to end consumers. Schemes with little or no evidence of actual product sales, or where products are merely incidental or completely absent, will be declared unlawful.
Companies must also maintain clear, accessible, and fair refund or buyback policies for unsold products. Businesses dealing in unregistered, unapproved, smuggled, or illegally imported goods will fall under the ban. However, the SECP clarified that legitimate direct selling businesses will remain allowed if their earnings primarily come from genuine product sales to consumers.
Prohibition of Ponzi Schemes
The proposed regulations impose a complete ban on Ponzi schemes. Any company that pays returns to earlier investors using funds from new investors, instead of profits from real business activity, will be considered illegal. Schemes offering high, fixed, or guaranteed returns with little or no risk are also prohibited.
Businesses with no identifiable underlying assets, revenue streams, or those that hide or misrepresent how investor funds are used will face strict enforcement action.
Crackdown on Pyramid Schemes
Pyramid schemes are also clearly prohibited under the draft rules. Companies will not be allowed to reward participants mainly for recruiting others rather than selling genuine products. Schemes lacking written agreements, imposing excessive product purchase requirements, or failing to offer fair and timely refund policies will not be permitted.
The regulations also ban systems that allow or encourage multiple participation positions solely to increase recruitment-based rewards.
Restrictions on Referral Marketing
Referral marketing models will also be tightly regulated. No company will be allowed to offer commissions or rewards primarily for referring new participants. Any referral-based scheme that shows characteristics of a pyramid or Ponzi structure will be treated as unlawful.
Public Asked to Report Illegal Schemes
The SECP said these proposed regulations are designed to promote responsible business conduct and protect the public from financial exploitation. Citizens have been encouraged to report any unlawful activities or schemes that violate the draft regulations.
If enforced, these rules are expected to significantly reduce financial scams in Pakistan and bring greater transparency and accountability to the business sector.
FAQs
What is the SECP proposing to ban in Pakistan?
The SECP has proposed a ban on multi-level marketing (MLM), referral marketing, pyramid schemes, and Ponzi schemes that rely on recruitment-based income rather than genuine product sales.
What is S.R.O. 2440(I)/2025?
It is the official notification issued by the SECP to introduce the draft Companies (Multi-Level Marketing, Referral Marketing, Pyramid & Ponzi Schemes) Regulations, 2025.
Will all direct selling businesses be banned?
No. Legitimate direct selling businesses will be allowed if their income mainly comes from real product sales to end consumers, not from recruiting new members.
What activities are considered Ponzi schemes under the draft rules?
Schemes that pay returns to old investors using money from new investors, promise guaranteed or high returns with low risk, or hide how funds are used are classified as Ponzi schemes.
How do the regulations define pyramid schemes?
Pyramid schemes are those that reward participants mainly for recruiting others, lack clear agreements, force excessive product purchases, or fail to offer fair refund or buyback policies.
Are referral marketing schemes completely banned?
Referral marketing schemes are prohibited if they primarily reward referrals and show features of pyramid or Ponzi schemes.
What action can be taken against violating companies?
Companies found violating the regulations may be wound up and face legal action under applicable laws.
Can the public report illegal schemes?
Yes. The SECP has encouraged the public to report any unlawful activities or schemes that violate the proposed regulations.
Conclusion
The proposed regulations by the Securities and Exchange Commission of Pakistan mark a strong step toward curbing financial fraud and misleading business practices in the country. By targeting MLM, referral marketing, pyramid, and Ponzi schemes, the SECP aims to protect consumers and investors from losses caused by recruitment-driven and non-transparent models.
If enforced, these rules will encourage legitimate business activity, improve market transparency, and reduce the spread of illegal schemes that exploit the public. The move also sends a clear message that only genuine, product-based and transparent business models will be allowed to operate in Pakistan.
