From Regulation to Opportunity: Kenya’s Virtual Asset Framework through a Capital Markets lens

In our previous article here (October 2025), we published an overview of Kenya’s Virtual Asset Service Providers Act, 2025 (VASP Act) examining its general licensing framework and implications for virtual asset service providers.

This article builds on that foundation with a specific focus on what the VASP Act means for investment managers, advisers and institutional investors.

Following the commencement of the Act on 4 November 2025, three significant developments are set to transform the investing landscape:

• the Nairobi Securities Exchange’s partnership announced in April 2025 to develop the Kenya Digital Exchange (KDX) for tokenized securities[1];
• M-Pesa Africa’s partnership with the ADI Foundation promises institutional blockchain rails across tens of millions of mobile accounts[2]; and
• the Capital Markets Authority publicly endorsed tokenization exploration, especially for money market funds[3].

The structural shift in capital markets architecture introduced by the VASP Act is converging with real infrastructure developments that promise new market rails and commercial pathways. This is new market plumbing with real strategic, pricing, and risk implications.

For investment professionals, this is the inflection point for strategy and capital deployment.

Asset classes: what’s in and what’s not

The statutory definition of a virtual asset is deliberately broad. It captures any digital representation of value that can be traded or transferred and used for payment or investment. The exclusions are narrow. Fiat currency, central bank digital currency, and securities already regulated under the Capital Markets Act are carved out.

This raises practical questions:

• Does holding, advising, or issuing a digital, programmatic instrument trigger licensing?
• Does settlement on distributed ledgers change product classification?
• Where is the line between regulated securities and tokens subject to the VASP regime?

The exclusion of securities already regulated under the Capital Markets Act suggests that a tokenized unit in a registered collective investment scheme should remain within CMA’s existing framework rather than triggering separate VASP licensing. Tokenized real-world assets such as real estate interests, trade receivables, carbon credits, or infrastructure cash flows structured outside existing collective investment scheme frameworks do not sit neatly within existing securities definitions. These instruments are likely to trigger VASP licensing, even if their economic substance looks familiar.

Complexity arises with novel structures. A tokenized real estate investment vehicle, for example, might be classified as a security (if structured as a collective investment scheme or real estate investment trust), a virtual asset (if structured as a transferable digital token outside the existing frameworks), or potentially both depending on its features. Kenyan courts have not yet ruled definitively on these classification questions, though the 2023 Wiseman Talent Ventures (KeniCoin) case[4] indicates judicial inclination to apply an “investment contract” analysis similar to US securities law when assessing whether a digital token constitutes a security.

The classification question is sharpened by a conceptual challenge: what distinguishes a “token” from existing dematerialised collective investment scheme units? Units in a real estate investment trust or money market fund are already electronic book entries representing fractional ownership in an asset pool-arguably a “digital representation of value” within the VASP Act definition.

The decisive factor will likely be the how rather than the what: if investing, holding, moving, or settling value happens on a distributed ledger with programmable functionality, regulators will look to the VASP Act first. However, this interpretation awaits confirmation in the implementing regulations currently being developed.

Licensing triggers and product design

Managing a traditional collective investment scheme holding listed equities or government bonds remains outside the VASP regime. Holding tokenized representations of securities already regulated under the Capital Markets Act is also likely to remain within CMA’s existing ambit.

Practical triggers for VASP licensing will almost certainly include: advising clients on virtual asset allocations, managing a fund that holds crypto assets, issuing tokenized fund units, or arranging custody of tokenized real-world assets.

The transition period is a strategic window. Operators who engage with the CMA now, through consultation responses and informal dialogue, will help shape the rules rather than merely react to them.

CMA’s direction of travel

The CMA has moved beyond cautious observation toward active encouragement of tokenization.

It has admitted tokenization projects into its regulatory sandbox, particularly in real estate. It has publicly discussed global examples of tokenized money market funds. It has framed tokenization as a mechanism to expand market access, not as a threat to stability.

The logic for Kenya is clear. Collective investment schemes held KES 679 billion in assets under management as of September 2025 (CMA, Sept 2025), with money market funds representing the largest segment. Tokenized money market funds could enable 24/7 trading, instant settlement, and potentially, distribution through channels that reach the 48.6 million Kenyans who use mobile money (Communications Authority of Kenya, Sept 2025) but may never open a brokerage account.

Regional context: Kenya’s competitive advantage

Live tokenized products in Africa remain scarce. South Africa led the way in April 2024 with the continent’s first tokenized corporate bond issued on Mesh.trade, a decentralized exchange for digital assets. To the west, Nigeria’s Securities and Exchange Commission has approved NASD Plc’s digital securities platform and Lagos State is tokenizing real estate. Despite this progress, no African jurisdiction has launched a tokenized fund product comparable to the ChinaAMC (tokenized money market fund) or BlackRock (bitcoin/crypto exchange traded products) offerings now operational in Asia and the US.

Kenya enters this race with a distinctive advantage: it is building on two tracks simultaneously:

• The first is the Kenya Digital Exchange (KDX), a partnership between the Nairobi Securities Exchange and international technology providers that is modelled as a regulated platform for tokenizing and trading real-world assets including equities, debt, funds, and commodities, built on enterprise-grade blockchain infrastructure. Once operational, the initiative will make Kenya one of the first African markets with exchange-traded digital asset products.
• The second track emerged in January 2026 when M-Pesa Africa announced its partnership with the ADI Foundation to deploy institutional-grade blockchain rails across over 60 million monthly users in eight countries. ADI Chain is purpose-built for stablecoins and tokenized real-world assets and is validated by partnerships with leading global asset managers and payment networks[5]. Safaricom Plc has also secured a CMA Investment Service Provider Platform licence, creating regulatory cover for distributing capital markets products via mobile money.

This combination is unique on the continent. South Africa has deeper capital markets but no mobile money blockchain integration. Nigeria has a larger crypto user base but fragmented regulation and no retail distribution rails. Kenya alone is positioned to offer both an institutional exchange and mass-market mobile distribution.

While the challenges are real: no live products yet, implementing regulations pending, reliance on foreign technology partners, as well as execution risk (multiple parallel initiatives must converge successfully); for operators evaluating where to launch tokenized products in Africa, Kenya’s infrastructure combination would be unmatched.

Compliance preparation timeline

The absence of implementing regulations does not mean the absence of compliance obligations. The Act is in force and the transition period is running; market players should use this window to prepare rather than wait.

Immediate steps:

• Conduct a comprehensive audit of all product lines relative to VASP definitions.
• Identify licensing triggers and gaps across investment, custody, and advisory functions.
• Initiate informal engagement with CMA and sandbox engagements.

Medium term (Mid – late 2026):

• Prioritise governance enhancements and risk frameworks.
• Evaluate and select technology partners for custody, AML, and compliance tooling.
• Draft pilot initiatives for tokenized products within regulated sandboxes.
• Launch first tokenized fund vehicles and market access products.
• Publish risk disclosures calibrated to institutional scrutiny and retail expectations.
• Position distribution strategies across institutional and retail rails.

Beyond compliance, operators face strategic choices that will shape their positioning in the tokenized asset market. Key questions at this stage will include: participate or observe/wait?; build or partner?; which products first?

Compliance and risk matrices

VASP compliance intersects deeply with institutions’ governance, risk, and operations:

• Governance: Boards and senior leaders will need documented fit-and-proper frameworks aligned with tokenized product risks and responsibilities.
• AML/CFT: Traditional controls will be insufficient. On-chain analytics, wallet surveillance, and real-time monitoring tools must become standard.
• Capital and insurance: VASP licensing brings capital adequacy and indemnity obligations.
• Disclosure and litigation: Tokenized products embed unfamiliar risks. Weak disclosures invite legal scrutiny and investor claims. The compliance mindset must be foundational, not after the fact.

Kenyan courts and regulators have shown a willingness to interrogate novel technology with a keen lens where governance or rights are implicated. Data protection, consumer protection, and AML failures attract real consequences.

Strategic opportunities

Despite the risks, the opportunities are substantial.

Tokenized real estate offers a credible solution to liquidity constraints and high entry barriers; tokenization enables fractional ownership and broader access.

CMA has pointed directly at tokenized money market funds. Faster settlement and broader access could change how institutional and retail investors think about cash management.

Further, development finance institutions are increasingly exploring tokenized structures for trade finance, agriculture, and infrastructure. These structures can enhance transparency and flow of funds.

M-Pesa’s infrastructure play strengthens all of these opportunities by making them operationally feasible at scale.

Conclusion

The VASP Act changes how capital markets operate. It affects licensing, product design, distribution, and risk management. A proactive approach over the next 10 months ending November 2026 will help firms engage with regulators, adapt governance and operational systems, and position themselves ahead of competitors.

Early engagement and clear strategy will be decisive.

How Spencer West can help

Spencer West advises capital markets intermediaries, fintechs, and financial institutions on regulatory strategy, product structuring, and market entry across Africa and the Middle East. Our Kenya practice offers regulatory assessment and product classification analysis under the VASP Act, CMA and CBK engagement support, structuring advice for tokenized products and digital distribution, and compliance framework development for virtual asset activities.

To discuss how these developments affect your business, please contact:

Michael Okeyo Partner, Corporate and Finance

Peter Mwaura Partner, Banking and Finance

This article is prepared for general information and does not constitute legal advice. For specific guidance on your circumstances, please contact the authors.

References

[1] Techpoint Africa [2025] Kenya partners with Canadian companies to create a blockchain-powered digital exchange, at: https://techpoint.africa/news/kenya-digital-exchange/ (accessed 20 January 2026)

[2] Business Daily [2026] M-Pesa, UAE firm ink deal for stablecoin payments, at: https://www.businessdailyafrica.com/bd/markets/currencies/m-pesa-uae-firm-ink-deal-for-stablecoin-payments-5323488 (accessed 21 January 2026)

[3] Capital Markets Authority [2025] Capital Markets Soundness Report, November 2025

[4] Wiseman Talent Ventures v Capital Markets Authority [2019] eKLR

[5] Globe Newswire [2025] BlackRock, Mastercard, and Franklin Templeton Announce Collaboration with the ADI Foundation Signaling Institutional Adoption, at: https://www.globenewswire.com/news-release/2025/12/18/3207534/0/en/BlackRock-Mastercard-and-Franklin-Templeton-Announce-Collaboration-with-the-ADI-Foundation-Signaling-Institutional-Adoption.html (accessed 21 January 2026)