PVARA's Power to Exclude Assets From the Act: s.2(2)(f)

Most of the scope debate in Pakistan’s new virtual asset framework has focused on the five specific carve-outs in section 2(2) — closed-loop tokens, securities, central bank digital currency, and two categories of non-fungible token. Those are the ones businesses read, argue about, and try to fit into.

The sixth carve-out gets almost no attention, and it is the most consequential of the six. It is a single line, it names no asset class, and it hands the Pakistan Virtual Asset Regulatory Authority a standing power to remove anything it chooses from the reach of the entire Act.

This is a note on what that residual exclusion power actually says, what it does not say, and how a business planning market entry should treat an exemption that has not yet been granted.

What does section 2(2)(f) of the Virtual Assets Act 2026 say?

Section 2(2)(f) of the Virtual Assets Act 2026 excludes from the Act’s application “any other digital representation of value or rights expressly excluded by the Authority.” It is a residual exclusion: no asset class is named, no criteria are stated, and no procedure is prescribed. The Authority decides, and the exclusion must be express.

The provision sits at the end of the scope carve-outs in section 2(2), after the five substantive ones. Here is the operative language in full:

(2) For the avoidance of doubt, this Act shall not apply to the following digital representations of value or rights, insofar as they meet the conditions stated below— … (f) any other digital representation of value or rights expressly excluded by the Authority.

Three features of that drafting matter.

First, it is open-ended. Unlike section 2(2)(a), which lists seven cumulative conditions a closed-loop token must satisfy, or section 2(2)(d), which conditions the NFT exemption on the token not being used for payment or investment, paragraph (f) imports no test at all.

Second, it requires an express act. The word “expressly” does the heavy lifting. Nothing falls outside the Act under paragraph (f) by implication, by analogy to an excluded category, or because it feels similar to something the Authority has previously waved through. Silence from PVARA is not an exclusion.

Third, the opening words of section 2(2) — “insofar as they meet the conditions stated below” — attach to the whole subsection. For paragraph (f) the only condition capable of being met is that the Authority has, in fact, expressly excluded the thing.

Who exercises the exclusion power, and how?

The power sits with “the Authority”, meaning the Pakistan Virtual Asset Regulatory Authority established under section 6 of the Act. The Act does not prescribe an instrument, an application route, a timeline or an appeal against refusal to exclude. In practice, the natural vehicles are the Regulations, standards, directives, guidelines and circulars PVARA may issue under section 9(2)(a).

Section 9(2)(a) empowers the Authority to:

make Regulations, standards, directives, guidelines, handbooks and circulars, or any other instrument, consistent with the objectives of this Act and other applicable laws;

That last phrase — “or any other instrument” — is broad enough to cover a notification, a public determination, or an entry in a published exclusion list. The Act does not narrow it.

There is an important structural point here. Section 7 sets out who the Authority is: a Chairperson appointed by the Federal Government, the Secretaries of Finance and of Law and Justice, the Governor of the State Bank of Pakistan, the Chairperson of the Securities and Exchange Commission of Pakistan, the Chairman of the National AML-CFT Authority, the Chairperson of the Pakistan Digital Authority, and two independent directors. Under section 8(2), quorum requires fifty percent of total membership with the mandatory presence of the Chairperson, the Finance Secretary and the SBP Governor, and section 8(4) requires decisions by majority of members present.

Our reading is that an exclusion under section 2(2)(f) removes an entire asset class from a statute the collegiate Authority administers, and so is properly a decision of the Authority as a body rather than something delegated downwards. Section 10 does permit the Authority to delegate powers and functions to the Managing Director “subject to such terms, conditions, and limitations as it may deem appropriate”, so delegation is legally possible. Whether PVARA chooses to delegate scope determinations is not addressed in the Act, and no guidance has been issued.

How does the exclusion power interact with PVARA’s classification power?

The exclusion power under section 2(2)(f) and the classification power under section 9(1)(f) point in opposite directions and should never be confused. Classification pulls assets into the Act on substance regardless of labelling. Exclusion pushes a defined thing out of the Act by express decision. Classification is the default posture; exclusion is the exception.

Section 9(1)(f) gives the Authority function to:

assess, determine, and classify any Virtual Asset, service, activity, offering, issuer, or service provider based on its substantive features, underlying function, method of use, or economic effect, irrespective of the nomenclature, structure, or designation assigned to it.

That same paragraph attaches a consultation condition where the asset “exhibits characteristics falling within their respective mandates” — the Authority must consult the State Bank of Pakistan or the SECP. Notably, section 2(2)(f) carries no equivalent consultation requirement on its face.

Feature	Classification — s.9(1)(f)	Exclusion — s.2(2)(f)
Direction	Brings assets into scope	Takes assets out of scope
Test	Substance, function, use, economic effect	None stated in the Act
Labels	Expressly disregarded	Not addressed
Consultation	SBP or SECP where mandates engaged	Not stated
Default if silent	Substance governs; likely in scope	Not excluded

The practical takeaway for anyone structuring a product is blunt. If your asset arguably sits inside the section 3(1)(xxxi) definition of a Virtual Asset — “a digital representation of value that can be digitally traded or transferred and used for payment or investment purposes” — then section 9(1)(f) will look through your naming and your documentation. A hoped-for future exclusion under paragraph (f) is not a defence in the meantime. That is the central point of our note on PVARA’s closed-loop token exemption, and it applies with more force here, because at least the closed-loop conditions are written down.

Can PVARA withdraw an exclusion once granted?

The Act does not say. Section 2(2)(f) confers a power to exclude expressly but is silent on variation, revocation, conditions or time limits. Nothing in the Act states that an exclusion, once given, is permanent. Businesses should plan on the basis that any exclusion may be conditional, may be time-bound and may be revisited.

Two contextual signals support that reading, and neither is decisive.

First, section 9(2)(c) empowers the Authority to “issue, vary, suspend or revoke licenses, approvals or directives under this Act and prescribe conditions for such actions.” That is expressed in terms of licences, approvals and directives rather than scope exclusions. If an exclusion is issued as a directive or other instrument, the variation power reads naturally onto it.

Second, section 9(2)(a) allows the Authority to make instruments generally, and the ordinary position is that the body which makes an instrument may amend it.

Against that, there is a legitimate argument that a business which restructured in reliance on an express exclusion has an interest deserving of notice and a hearing before the exclusion is pulled. The Act builds procedural protection into comparable decisions elsewhere — section 21(1)(b) requires written reasons for refusing a licence, and section 23(1) requires written notice and an opportunity of being heard before a licence is varied, suspended or revoked. No equivalent appears for exclusions. Whether the Virtual Assets Appellate Tribunal established under section 62 would entertain an appeal against withdrawal of an exclusion depends on whether the withdrawal is characterised as “an order of the Authority” for the purposes of section 63. That question has not been tested and we do not think it can be answered confidently from the text.

What should a business planning market entry actually do?

Treat your asset as in scope until PVARA expressly says otherwise in writing. Do not build a launch timeline, a capital plan or a banking application around an exclusion you have applied for, been informally encouraged about, or believe is analogous to one granted to somebody else. Build the licensed path, and treat any exclusion as upside.

The reason is the penalty architecture, not caution for its own sake. Under section 50, no person may by way of business engage in or represent themselves as engaging in any Virtual Asset Service in or from Pakistan unless they are a company incorporated in Pakistan and hold a valid PVARA licence. Section 54(1) makes wilfully providing an unlicensed Virtual Asset Service punishable with imprisonment up to five years, a fine up to fifty million rupees, or both. Section 61 lets the Authority block websites, apps, adverts and payment links connected to unlicensed services. Getting a scope call wrong is not a paperwork problem.

A workable planning sequence:

1. Map the asset against the definition in section 3(1)(xxxi) first. If it is not a Virtual Asset at all, you do not need an exclusion.
2. Then test the five specific carve-outs. Closed-loop under section 2(2)(a) is cumulative — all seven conditions, not most of them. The NFT carve-outs in section 2(2)(d) and (e) turn on payment or investment use and on substance, function or economic effect.
3. Only then consider paragraph (f). Ask whether your case has a policy rationale PVARA would recognise under its section 9(1) objectives, particularly promoting responsible innovation under section 9(1)(d).
4. Run the licensed path in parallel. Begin the SECP incorporation and NOC workstreams on the assumption you are in scope. Section 19(1) requires a No-Objection Certificate before incorporation for a company whose primary object is Virtual Asset Services.
5. Consider the sandbox as the honest middle route. Where the question genuinely is whether a novel mechanism should be regulated at all, the regulatory sandbox under section 35 and the PVARA Sandbox Guidelines 2026 gives you a supervised environment and a documented record with the regulator. The Sandbox Guidelines describe an agile intake — applications may be submitted at any time during the year.
6. Document the analysis. If a scope determination is later challenged, contemporaneous reasoning matters. Section 54(4) criminalises knowingly making false or misleading statements to the Authority, so the file you build should be one you would be content to hand over.

For businesses already operating, section 70(1) requires any person providing Virtual Asset Services immediately before commencement to apply for a licence within six months or cease. An unconfirmed hope of exclusion does not stop that clock. The interaction between the transitional window and the current NOC and AML registration route is where most sequencing errors happen.

Is there any indication of how PVARA will use this power?

No. Neither the Virtual Assets Act 2026, the PVARA No Objection Certificate Regulations 2025 nor the PVARA Sandbox Guidelines 2026 states criteria, a process or a published register for exclusions under section 2(2)(f). Until PVARA issues guidance, the honest answer is that the scope of the power is known and its exercise is not.

What we can say is where an exclusion would sit least comfortably. The Act’s stated objectives in section 9(1)(b) include protecting customers and investors and preventing money laundering, terrorist financing and other illicit use of Virtual Assets, and section 9(2)(a) requires any instrument the Authority makes to be “consistent with the objectives of this Act”. An exclusion that created an unsupervised channel for value transfer would be difficult to reconcile with those objectives and with Pakistan’s FATF commitments, which section 46(3) expressly directs the Authority’s AML framework to align with. Section 5(3) also vests regulation of virtual assets, tokenisation of real-world assets and blockchain technology primarily in the Authority “in coordination with other relevant regulators where applicable” — a signal that scope decisions are unlikely to be made in isolation.

Our reading is that paragraph (f) is best understood as a housekeeping and future-proofing provision — a way for the Authority to deal cleanly with digital artefacts that plainly do not raise the risks the Act was written to address, without needing an amendment to primary legislation each time. That is a sensible design. It is not a general-purpose escape hatch, and treating it as one is a planning error we see reflected in several of the failure patterns set out in our piece on why crypto companies fail to enter Pakistan. If your route to market depends on an exclusion nobody has granted, you do not have a route to market. Confirm your position through the licensing and NOC process, and check the current position published by the Authority at pvara.gov.pk before acting.

About this analysis

This analysis was prepared by the CoinConnect research desk from the Virtual Assets Act 2026 as passed by the National Assembly, the PVARA No Objection Certificate Regulations 2025, and the PVARA Sandbox Guidelines 2026, each read as published. Where practice is not yet settled or guidance has not been issued, that is stated above.

Regulatory positions change and specific requirements should be verified against the current position published by the relevant authority before you act on them. This is information and analysis, not legal advice, and it does not create an advisory relationship. Take professional advice on your own circumstances.