Kenya is poised to become a leader in cryptocurrency regulation in Africa, as the government drafts legislation to oversee digital assets, and a significant portion of banks express readiness to engage in crypto-related activities. The findings signal a shifting view of banks about virtual assets on the back of increased use across sectors such as finance, entertainment, real estate and art.

According to the Central Bank of Kenya’s (CBK) 2024 innovation survey, 31% of Kenyan banks indicated a high likelihood of undertaking activities involving virtual assets, including cryptocurrencies like Bitcoin and Ethereum, non-fungible tokens (NFTs), and digital tokens.

This shift comes as the National Treasury unveils the Draft National Policy on Virtual Assets and Virtual Asset Service Providers, aiming to establish a legal and regulatory framework for digital assets in the country.

Kenya’s move toward cryptocurrency regulation marks a significant departure from its previous cautious stance. In recent years, the CBK had issued warnings against dealing with cryptocurrencies, citing risks such as money laundering and terrorism financing. However, the growing adoption of digital assets and the potential for financial innovation have prompted a reevaluation.

Treasury Cabinet Secretary John Mbadi emphasized the government’s commitment to creating a fair, competitive, and stable market for virtual assets and service providers. The draft policy outlines plans to license and regulate entities involved in digital asset activities, ensuring consumer protection and financial stability.

The proposed legislation aims to:

The policy draws from international best practices and regulatory insights from bodies such as the Financial Action Task Force (FATF) and the International Monetary Fund (IMF). The CBK’s survey indicates a growing interest among Kenyan banks in engaging with digital assets. This readiness reflects a broader trend of financial institutions recognizing the potential of cryptocurrencies and blockchain technology to enhance financial services.

If adopted, Kenya would join other African nations, such as South Africa and Nigeria, in implementing crypto regulatory measures, positioning itself as a regional leader in digital asset regulation.

Kenya’s financial sector is a beacon of innovation and growth in Africa. From the groundbreaking mobile money revolution pioneered by the launch of mobile based financial services in 2007 to robust financial system, the country has consistently pushed the boundaries of financial inclusion through technological advancements. The integration of digital assets into the banking sector could facilitate faster and more cost-effective cross-border transactions, expand access to financial services, and foster innovation in financial products.

The regulation of cryptocurrencies in Kenya could have far-reaching implications for the economy. By providing legal clarity and consumer protections, the country can attract investment in the fintech sector, stimulate innovation, and enhance financial inclusion.

Moreover, the government’s proactive approach to regulation may serve as a model for other countries grappling with the challenges and opportunities presented by digital assets.

The emergence and growth of Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs) have given rise to innovations in the local and international financial system with dynamic opportunities and challenges. VAs have gained traction due to the desire for alternative investment avenues, the speed and cost-effectiveness of cross-border transactions and their pseudonymous nature.

Adoption of VAs in Africa has grown exponentially in the recent past, as evidenced by the increasing number of countries with regulatory frameworks for VAs and VASPs. Kenyans are increasingly adopting VAs as an alternative form of investment and transfer of value, due to their fast speed, cost, cross border nature, convenience, and anonymity.

The VAs and Virtual Asset Service Providers (VASPs) ML and TF National Risk Assessment (NRA) conducted in Kenya in 2023 revealed that the population aged between 18 and 40 years showed a greater interest in VAs.

 

Follow us on Twitter, Facebook, or LinkedIn to ensure you don’t miss out on any