In the dynamic world of digital finance, Kenya has taken significant strides toward establishing a regulatory framework for crypto assets, signaling its commitment to fostering innovation while ensuring financial stability and protecting consumers.
This article provides an overview of the key developments that have shaped Kenya’s approach to regulating Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs).
Joint Financial Sector Regulators Forum Initiative : December 2022:
The Joint Financial Sector Regulators (JFSR) Forum, a consortium of all financial sector regulators in Kenya, made a pivotal decision to develop recommendations for a comprehensive oversight framework on crypto asset activities and players. This initiative marked a significant step towards addressing the regulatory gaps in the fast-evolving crypto asset landscape.
Technical Working Group on Crypto Assets 2023:
The National Treasury and Economic Planning took a proactive step by establishing a Technical Working Group on Crypto Assets. This group’s mandate was to craft an oversight framework specifically for crypto asset activities and players, aiming to bridge policy and regulatory gaps.
Legislative Developments March 2023:
The Capital Markets (Amendment) Bill 2023 emerged as a notable legislative proposal, seeking to amend the Capital Markets Act. The amendment aimed to include definitions of blockchain, cryptocurrencies, and crypto miners, proposing that digital currencies be recognized under the definition of securities.
This bill also set prerequisites for VAs to enter the Kenyan market and outlined registration and taxation requirements for trading in digital currencies.
CBK’s Technical Paper on Crypto Assets June 2023:
In response to the global instability in the crypto assets market, the Central Bank of Kenya (CBK) issued a Technical Paper on Crypto Assets. This document summarized key developments and underscored the need for a thorough review of innovation and technology risks associated with crypto assets.
Taxation of Digital Assets 2023:
The Finance Act, 2023, introduced a 3 percent Digital Asset Tax on income derived from the transfer or exchange of digital assets, including cryptocurrencies and Non-Fungible Tokens (NFTs). This move aimed to establish a tax framework for the burgeoning digital asset transactions.
Data Privacy and Worldcoin Inquiry July 2023:
Concerns regarding data privacy surfaced with Worldcoin’s operations in Kenya, leading to a national discourse on the need for robust oversight frameworks.
An ad-hoc Committee of the National Assembly recommended the development of comprehensive policies on VAs/VASPs following an inquiry into Worldcoin’s activities.
AML/CFT Mutual Evaluation Report 2022
The Anti-Money Laundering and Terrorism Financing Mutual Evaluation Report 2022 highlighted Kenya’s non-compliance with FATF Recommendation 15, emphasizing the absence of a legal framework to regulate the VA sector.
The report urged Kenya to decide on the operational status of VASPs and implement licensing, registration, and a supervisory framework for AML/CFT.
Embracing Innovation with Prudence
Kenya’s journey towards establishing a regulatory framework for crypto assets illustrates a balanced approach to embracing digital financial innovation while safeguarding against potential risks. By pursuing comprehensive legislation, tax measures, and privacy protections, Kenya is laying the groundwork for a secure and thriving digital asset ecosystem.
As the country continues to navigate the complexities of crypto asset regulation, its efforts underscore the importance of proactive governance in the age of digital finance.
