Kenya issues draft policy on virtual assets regulation

The Kenyan National Treasury and Economic Planning has developed a draft policy to guide the creation of regulations for virtual assets and virtual assets service providers (VASPs) in the country.

It has also called for public input and plans to conduct public participation forums as it looks to shore up its cryptocurrency regulatory drive. 

The details 

• The draft document, dated Dec. 2024, highlighted the country’s favored approach to relating with crypto assets before starting with a soft ban in 2015 and several subsequent public warnings against dealing with crypto. 
• It admitted that there has been a lot of uncertainty around virtual assets — their definitions, scope, legal status and the government agency that should monitor and supervise the asset class. 
• Per the agency, government outfits such as the Central Bank of Kenya (CBK) and the Kenyan Capital Markets Authority (CMA) have adopted some regulatory measures over the years. 
• However, there is still a glaring lack of a central and binding body of rules to guide crypto usage across board. 
• To create its crypto regulatory regime, Kenya is looking to draw inspiration from international bodies such as the Financial Action Task Force (FATF), the Financial Stability Board and the International Monetary Fund (IMF). 
• In addition, it is also looking at countries such as the United Kingdom, France, the United States of America, Singapore, Mauritius, Nigeria and the European Union to take lessons on implementing virtual assets regulations. 
• The draft recommended several policy interventions, chiefly the establishment of a comprehensive legal and regulatory framework governing the usage of virtual assets within Kenyan borders. 
• These regulations should comply with international standards and keep with anti-money laundering (AML) and combating the financing of terrorism (CFT) guidelines. 
• It also recommended that the regulations, once established, should be reviewed every 10 years.  
• In another circular, the Kenyan National Treasury and Economic Planning asked input from the public to be submitted to it before Jan. 24. In addition, it plans to hold public forums across the country between Jan. 20 and 29. 

Key quote 

• Kenya’s cabinet secretary in charge of the National Treasury and Economic Planning, Hon. FCPA John Ng’ongo, said; 

“The Government of Kenya is committed to creating the necessary legal and regulatory framework in order to leverage opportunities presented by VAs and VASPs while managing the resultant risks.” 

Dive deeper 

• Crypto regulations in Kenya have been up and down, neither here nor there. 
• In 2015, the CBK warned financial institutions in the country to refrain from dealing with cryptocurrencies.  
• It also warned Kenyans to avoid them because of a lack of regulations. These warnings have since been reiterated and reinforced to Kenyans. 
• In 2023, the country introduced a controversial and widely debated digital asset tax (DAT) as part of its amended Finance Act. 
• This law stipulated a 3% tax on the gross income from the trade or exchange of virtual assets without minding whether they are exchanged at a profit or loss or merely moving assets between exchanges. 
• This was in addition to existing deductibles on virtual assets such as the income tax, capital gains tax, digital services tax and value-added tax. 

Zoom out

• The East African country was also at the center of the controversy around the decentralized identity protocol, Worldcoin. 
• Within months of its launch, Worldcoin had quickly grown popular in the country, mainly because of crypto incentives (25 WLD) issued to individuals who sign up on the platform. 
• After issuing several warnings, Kenyan authorities suspended the firm’s activities in the country, seized their equipment and started a legislative probe into their activities. 
• A year later, the country dropped investigations and cleared Worldcoin to resume its operations. However, the regulations under which Worldcoin was permitted to resume operations remain unclear. 
• Regardless of these, Kenya remains the largest crypto market in East Africa and is in the top five crypto markets by volume in the continent.