The Securities and Exchange Commission of Pakistan (SECP), observing the rising prevalence of surrogate advertisements on specific internet-based cryptocurrency exchanges and betting platforms, has instructed all companies, including limited liability partnerships (LLPs), to refrain from engaging in any promotional or sponsorship agreements with entities engaged in surrogate advertising.
Surrogate advertising is a loophole. For example, in India, there has long been a law in some states that bans alcohol advertising. So what alcohol companies do to get around this is launch a product with brand recognition similar to their alcohol.
Similarly, one of the main sponsors of the Pakistan Cricket Board was Dafa News. Now, Dafa News exists and is a news website. But, it was owned and operated by DafaBet, a well-known betting company. While the law does not allow DafaBet to sponsor in Pakistan, nothing stops a news website like Dafa News from supporting it. Hence, a loophole.
The SECP expanded on this by saying that surrogate advertising promotes banned products, digital coins, and betting platforms as substitute goods, often through indirect means like sponsorship of sports events, aiming to implant the brand in consumers’ minds. It has also been observed that various online platforms, disguised as sports blogs and news websites, are promoting illegal digital coins, online betting, and cryptocurrency investments.
The Notification issued under Section 40B of the SECP Act advised all companies and LLPs to terminate all existing agreements with such surrogate entities/companies immediately and ensure compliance in actual letter and spirit.
As per the regulations by the government of Pakistan, any kind of betting is illegal under the Prevention of Gambling Act 1977, whereas cryptocurrency through online platforms was recently suspended in May 2023.
According to the SECP, the public should exercise extreme caution while investing in internet platforms and mobile apps. None of the individuals, companies, or entities advertising cryptocurrencies in Pakistan have been recognized or authorized by the SECP or other regulatory bodies. Thus, the investments promoted by these entities carry risks and may be part of fraudulent schemes.