Kenya is on the verge of establishing a formal regulatory framework for digital assets. The country’s National Assembly has advanced a proposed law, the Virtual Asset Service Providers (VASP) Bill, approving it at the committee stage on Thursday.
This step allows the bill to proceed to a final vote before being presented to President William Ruto for assent.
It’s part of Kenya’s long-term push to regulate cryptocurrency, which could make the country a front-runner in digital asset regulation across East Africa.
As one of Africa’s top three cryptocurrency markets, Kenya aims to create a system that attracts investment and fosters innovation while imposing necessary oversight on the sector.
The legislation introduces a clear regulatory framework
The VASP Bill introduces a detailed regulatory structure to protect investors, citizens, and ensure market integrity.
Under the new law, only licensed companies can offer cryptocurrency services. This provision prevents individuals from launching unregulated initial coin offerings (ICOs).
Licensed entities must disclose their beneficial ownership per existing company regulations to facilitate authorities’ efforts to address market manipulation.
The bill also establishes severe penalties for violations. Companies operating without a license could face fines of up to 20 million Kenyan Shillings. Citizens involved in unlicensed activities may be fined 10 million Shillings or imprisoned for up to 10 years.
Authorities will also have the right to suspend or revoke the licenses of firms engaged in fraudulent activities.
The legislation puts ICOs under direct regulatory watch. Companies must now seek approval before launching an ICO and submit comprehensive project details, including information about the creators.
Providing false or misleading information can lead to the ICO being denied or penalised, with consequences including fines and potential prison terms.
The Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) are designated as the primary regulators. The Treasury Secretary will be empowered to develop specific rules for key areas, including stablecoins, the tokenisation of real-world assets, cybersecurity, and advertising standards.
Details about how the bill started and what led to its creation
This bill’s development resulted from several years of evolving crypto adoption, market incidents, and external pressures.
They have consistently ranked among the top countries in Africa for peer-to-peer cryptocurrency transactions. Millions of citizens have used digital assets for investments, cross-border trade, and remittances.
However, this fast expansion occurred without a specific law, leaving consumers vulnerable and creating opportunities for fraudulent practices.
This is evident with the collapse of platforms like Bitstream Circle, which led to significant financial losses for many Kenyans.
For years, the Central Bank of Kenya maintained a cautious stance. Since a 2015 public notice, the CBK has advised financial institutions to avoid dealing with cryptocurrencies, citing concerns over money laundering, consumer protection, and market stability.
As a result, Kenya’s inclusion on the Financial Action Task Force’s (FATF) grey list was part of the reason for the bill in February 2024.
This listing identified Kenya as a jurisdiction requiring increased monitoring for money laundering and terrorism financing.
So, the authorities figure that implementing a robust regulatory framework for virtual asset service providers is a key requirement for removal from this list.
Meanwhile, the International Monetary Fund (IMF) has also consistently advised Kenya to modernise its oversight of the digital finance sector.
In a notable departure from standard procedure, the National Assembly’s Departmental Committee on Finance and National Planning enlisted the Blockchain Association of Kenya (BAK) to help draft the bill’s initial version in late 2023.
This collaborative approach acknowledged the industry’s technical expertise. The Committee’s Chairperson, Hon. Kuria Kimani, formally introduced the bill to the Assembly.