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Kenyan Government Moves to Regulate Crypto

The Kenyan government has taken steps to regulate the cryptocurrency industry in an effort to safeguard users and tighten operations in the space by creating a multiagency technical working group. The technical team that is the brainchild of Kenya’s Treasury Cabinet Secretary Prof. Njuguna Ndung’u has been tasked with developing a regulatory and monitoring framework to govern the use of cryptocurrencies, referred to as virtual assets (VAs). The team is also mandated to developed regulations for crypto assets and other digital/virtual assets service providers, generally known as Virtual asset service providers (VASPs).

The move by the Treasury cabinet secretary is a welcome step in the right direction as the country seeks to open its economy to the financial digital revolution. Save for a few people, cryptocurrency still remains a new phenomenon in Kenya that is yet to feature in the country’s mainstream financial markets. As such, there is currently no legal structure in place to oversee its operations, leaving users vulnerable to issues with fraud and scams.

Kenyan Regulators Warming Up to Crypto

The multi-agency team is thus expected to develop the foundations for regularizing cryptocurrencies in the country with its experts drawn from various fields and governmental agencies. This is according to the cabinet secretary who stated that the multi-agency technical committee includes the Central Bank of Kenya (CBK), the financial institution industry regulator.

According to a brief to the National Assembly, Prof Ndung’u stated that:

The National Treasury has accordingly taken a policy decision to develop a regulatory and monitoring framework for Vas and VASPs through a multiagency technical working group to formulate the framework

The Cabinet secretary reiterated the Kenyan government’s and its Central Bank focus of protecting its citizens against the rapidly rising scams in the cryptocurrency as an important precursor for setting up the agency. He stated:

Due to the emergence of online marketing of virtual assets and online fraudulent investment options, CBK and other financial sector regulators issued notices warning the public against the use of unlicensed financial products and services

The formation of an agency follows in the steps of recent results of VAs risks assessment. In September 2023, the Financial Reporting Centre (FRC) of CBK assessed the risk of money laundering and terrorism financing (ML/TF) on virtual assistants (VAs) and virtual asset servicing providers (VASPs). The FRC recommended regulations to address the risks associated with ML/TF, including consumer protection, data privacy, and governance.

The report recommended that Kenya should make policy decisions about Vas and VASPs, according to the Eastern and Southern Africa Anti-Money Laundering Group’s (ESAAMLG) Mutual Evaluation Report (MER) of 2022 on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT).

Kenyan Crypto Usage Growing

In East Africa, Kenya ranks first with the most activity and interest in cryptocurrencies and ranks among the top 5 in Africa. With only over 4.4 million owners, Kenya lags behind Nigeria in terms of overall bitcoin ownership. With such a large user base that is growing gradually, there is the need for formalize the operations within the cryptocurrency sector to safeguard its users.

Kenya appears to be changing its stance on regulating cryptocurrencies. In 2023, the nation’s parliament resumed active participation in cryptocurrency-related discussions and projects following a period of criticism.

The Capital Markets (Amendment) Bill, 2023 was finally approved by the National Assembly committee in December of that year. If this measure is approved, it will drastically alter Kenya’s stance on cryptocurrencies by imposing taxes on wallets and exchanges that are comparable to those on regular bank transactions.

Looking Forward

The latest development of forming a multi-agency team to formulate regulations is a step in the right direction that will help to shine the spotlight on cryptocurrencies by making them appealing to the mainstream financial market. More importantly, the laws will open up the space to institutional investors and level the playing field further expsnding the country’s capacity for digital assets and other financial innovations down the line.

Edwin Kinoti

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