Over the past few decades, analysts have identified the inability of African countries to rapidly and effectively adapt to emerging trends as a key contributor to the continent’s slow economic growth. However, Kenya has been home to groundbreaking fintech solutions in diverse areas such as payment service providers, digital lending, insurance aggregation, and cryptocurrency.
Following the Kenya’s grey listing by the Financial Action Task Force in February 2024, there has been an increased demand for the regulation of cryptocurrency assets. Consequently, the Virtual Assets Providers Bill, 2025 (the “VASP Bill”) was drafted with the intention of regulating virtual assets and curbing money laundering and cybersecurity threats. This article defines Virtual Assets (VAs), provides a brief history on regulations of VAs in Kenya.
What are Virtual Assets?
Virtual Assets (“VAs”) as defined in the VASP Bill means the digital representations of value that can be exchanged or transferred, and are usable for payments or investment purposes. This includes, cryptocurrency and digital tokens. However, they do not include digital representations of fiat currencies issued by the Central Bank of Kenya or of other jurisdiction such as United States Dollars, in digital form, in the bank or electronic money. Further, Virtual Assets as used does not include non-fungible tokens not used for payment or investment and virtual service tokens used for the benefit of the owners’ sole benefit.
VAs, especially cryptocurrencies, utilize Digital Ledger Technology such as blockchain technology. Blockchain in this case means a digital lender or database of transactions relating to VAs which are recorded chronologically and which are capable of being audited. Digital Ledger Technologies are different from traditional databases since they rely on a network of computers to validate and record transactions instead of a central administrator. As such, the decentralization and anonymity associated with VAs pose significant consumer protection, fraud, terrorist financing, and money laundering concerns.
The history of VA Regulation
In Kenya, the collapse of FTX Trading Limited in November 2022 highlighted the need for regulatory intervention in the VA space. Kenya’s regulatory journey began in December 2015, when the Central Bank of Kenya (“CBK”) cautioned against virtual currencies such as Bitcoin, citing risks including money laundering, terrorist financing, volatility, and consumer vulnerability. The CBK also cautioned banks against dealing in virtual currencies. Other financial regulators such as Capital Markets Authority (“CMA”), SACCO Societies’ Regulatory Authority (“SASRA”), Retirement Benefits Authority (“RBA”), and Insurance Regulatory Authority (“IRA”) issued similar warnings in 2018 against dealing in unlicensed and unregulated financial products.
Additionally, in Civil Suit No. 08 of 2019 Wiseman Talent Ventures v CMA (2019), the High Court in dealing with the initial offering of ‘Keni Coin’ affirmed the CMA’s authority to regulate VAs while acknowledging the lack of specific crypto regulations. This decision marked a shift towards regulatory acknowledgment. The CBK further warned the public against dealings in unlicensed financial products in 2020 in its anticipatory role as a potential regulator of VAs.
VA regulatory activity heightened in 2023. In June 2023, the CBK’s Technical Paper on Crypto Assets discussed global developments and the need for risk evaluation. Further, the Capital Markets (Amendment) Bill, 2023, sought to include “digital currencies” in securities definitions and assign an oversight role to the CMA. The Crypto Assets Bill, 2023, proposed a regulatory framework with CMA oversight, including taxation and market transparency measures. To date, these bills have not progressed substantively.
The World Coin controversy subsequently sparked data privacy concerns that prompted the National Assembly’s ad-hoc committee to recommend a comprehensive oversight framework in September 2023. The committee’s report evaluated Money Laundering/Financing of Terrorism risks associated with VAs and called for clear policy stand: either to permit or prohibit VA activities. If permitted, the committee report advised on the implementation of licensing and risk-based measures as per FATF Recommendation 15.
Later, in March 2024, the Blockchain Association of Kenya (BAK) presented the VASP Bill, 2024, to the National Assembly, seeking to establish a regulatory office, regulate VASP operations, enhance transparency, protect consumers, tax transactions, and create a regulatory sandbox. The National Treasury and Economic Planning also formed a working group for a regulatory framework, leading to the Virtual Assets Service Providers, (“VASP”) Bill, 2025.
In the following article in this series on VAs, we highlight the key regulatory requirements proposed in the VASP Bill. Read more on our website.
This publication is meant for general information only and does not constitute legal advice, nor does it create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us on advocate@lexgroupafrica.com for tailored legal support.
Authored:
CG Mbugua, Partner, Corporate Commercial Practice Group
Co-Authored:
Jessica Opiyo, Associate
Shamiah Muchesia, Legal Assistant,
Ian Mwithi, Legal Assistant
