SECP prohibits Ponzi, pyramid and recruitment-led marketing schemes under new company regulations

Scope and legal effect

SECP placed the Companies (Prohibition of Unlawful Activities) Regulations, 2026 on its published regulations list on 2 November 2026. The announcement released on 3 November describes the framework as notified, rather than a draft consultation. The regulations address the way companies promote and operate financial and marketing schemes, not merely the words used to describe their businesses.

The scope extends to companies, including foreign companies, and to activities carried on physically or through websites, mobile applications and social media. A digital interface, franchise chain or overseas corporate structure is not, by itself, a reason to treat a recruitment-led offer as outside the framework. Existing operations displaying the prohibited characteristics also require examination.

The activities brought within the prohibition

The principal concern is remuneration and financial returns disconnected from genuine economic activity. The announced indicators include participants earning mainly from recruiting further participants rather than retail sales, earlier investors being paid from contributions by later investors, implausible guaranteed investment returns, and concealment of the underlying use of funds.

The descriptions also address substantial joining charges or inventory purchases, products without realistic end-customer demand, misleading statements about income or products, inadequate refund or buy-back arrangements, and unlawful goods. Whether any particular arrangement falls within a prohibited category depends on the terms and its actual operation; calling an arrangement an affiliate programme or membership scheme is not determinative.

The important distinction is between a prohibited recruitment-driven structure and bona fide direct selling. A business genuinely compensating participants principally for products sold to actual end consumers is not made unlawful merely because it distributes through a network. Its sales evidence, compensation design and consumer-facing disclosures will be central in showing that distinction.

Consequences for companies and decision makers

SECP's announcement describes enforcement consequences for companies, directors and officers under section 512(2) of the Companies Act, 2017, with possible further action including winding up under section 301. This is not confined to consumer claims brought after a loss: corporate promotion or facilitation of a prohibited scheme may itself attract regulatory attention.

Directors should treat the prohibition as a governance and business-model issue. A memorandum clause authorising marketing, the existence of an incorporation certificate or a contract signed by participants should not be treated as independent regulatory clearance for an otherwise prohibited arrangement.

Practical compliance review

Companies operating referral, distribution, subscription and membership structures should map how each participant is actually paid, who ultimately buys the goods or services, how sales are evidenced and whether bonuses are contingent on recruitment. Review all marketing materials for promises of investment-like returns, including social-media advertising and statements made by agents.

Examine joining fees, compulsory inventory, buy-back and refund policies, product registration requirements, and the financial flow between old and new participants. Boards should record remediation decisions and preserve a defensible compliance trail. A lawful retail-sales business can continue to distinguish its activity through transparent terms and verifiable sales records.

Companies should assess any related securities, banking, deposit-taking, competition, consumer protection or criminal law issues separately. Compliance with these regulations is not a substitute for authorisation under another applicable regime.