On January 10, 2025, Kenya's Treasury Cabinet Secretary John Mbadi announced the introduction of a new bill aimed at regulating virtual assets (VAs) and Virtual Asset Service Providers (VASPs). This move is seen as a significant pivot from the country’s previous stance on cryptocurrencies, which has been marked by caution and regulatory uncertainty.
The bill seeks to establish a controlled market for both cryptocurrencies and VASPs, ensuring that the growing sector operates within a regulated framework. Mbadi highlighted the need for such regulation, noting that virtual assets have created both opportunities and challenges within the global financial system. “The emergence and growth of Virtual Assets and Virtual Asset Service Providers have given rise to innovations in the local and international financial system, with dynamic opportunities and challenges,” he stated.
The legislation comes after a draft policy from December 2024 aimed at stabilizing Kenya's virtual asset market, while promoting financial literacy and innovation. The government's goal is to mitigate the risks associated with virtual assets while tapping into their benefits, ensuring that they are used in a controlled and beneficial manner for the country’s economy.
A Shift in Policy Amidst International Pressure
Kenya’s regulatory shift follows increased international scrutiny. In 2024, the Financial Action Task Force (FATF) called on the country to improve its anti-money laundering measures and address concerns about the potential use of cryptocurrencies in financing terrorism. This external pressure, alongside growing domestic interest in cryptocurrencies, seems to have prompted the government to reconsider its position on digital assets.
Historically, Kenya has been cautious with cryptocurrencies. In 2015, the Central Bank of Kenya issued a public notice discouraging their use, asserting that digital currencies were not legal tender and prohibiting crypto-based money remittance services. However, despite this stance, cryptocurrencies continued to grow in popularity within the country. A 2022 United Nations report revealed that nearly 10% of Kenyans held some form of cryptocurrency, indicating the widespread use of digital assets despite regulatory uncertainties.
Regulation as a Step Toward Stability
The new regulatory framework aims to provide clarity and stability to an otherwise volatile and largely unregulated market. By introducing the bill, Kenya is signaling its willingness to strike a balance between fostering innovation and ensuring consumer protection. The country’s financial authorities will be tasked with overseeing virtual asset transactions, ensuring that they comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.
Kenya’s transition from skepticism to regulation also highlights a broader global trend. Many countries, faced with the increasing adoption of cryptocurrencies and the rise of decentralized finance (DeFi), have begun to explore ways to regulate the sector in a way that encourages innovation while safeguarding against risks.
Looking Ahead: A New Era for Crypto in Kenya
The proposed bill marks a significant step forward for the Kenyan government’s approach to cryptocurrencies. If enacted, it will provide the necessary regulatory framework to ensure that virtual assets contribute positively to the economy, while mitigating the risks of fraud, money laundering, and other illicit activities.
As the world’s financial systems continue to evolve, Kenya’s regulatory stance on cryptocurrencies will be closely watched by both local and international stakeholders. With the right policies in place, the country could position itself as a leader in virtual asset regulation in Africa, setting a precedent for other nations to follow.
In the coming months, stakeholders in the crypto and financial sectors will await further details on the bill’s provisions, and how it will impact both investors and businesses operating within the virtual asset space in Kenya. The ultimate success of the regulation will depend on its implementation and the government’s ability to keep pace with rapid technological advancements in the virtual asset space.
January 2025, Cryptoniteuae