Government of Kenya takes steps to regulate Virtual Asset Activities

Kenya is taking a number of policy interventions within the virtual assets ecosystem. Peter Mwaura from our Kenya office provides an overview of these interventions and offers key considerations and recommended actions to prepare for the new opportunities emerging from this regulatory development.

Background

Despite regulatory uncertainty, virtual asset activities have grown significantly in Kenya. A recent International Monetary Fund (IMF) report noted that when Kenya faced a US Dollar shortage, many Kenyans turned to stablecoins to settle international payments.[1] The same IMF report indicated that Kenyans used stablecoins to hedge against the volatile Kenya Shilling.[2]

The absence of a clear regulatory framework to monitor and regulate the increased use of virtual assets contributed to the grey listing of Kenya by the Financial Action Task Force (FATF) in 2024.[3] FATF acknowledged, however, that Kenya made a “high—level political commitment” to enhance its efforts against money laundering and terrorism financing associated with virtual asset activities. In December 2024, Kenya developed a Draft National Policy on Virtual Assets and Virtual Asset Service Providers (VASP Policy) in line with this commitment.[4]

The VASP Policy

The policy highlights gaps and challenges in the Kenya virtual assets ecosystem and provides targeted policy and strategy interventions to address them as follows.

• Gap: Lack of a clear legal framework

Intervention: Kenya will develop a legal framework for virtual assets based on global best practices. The Government plans to establish clear standards and procedures, a robust framework for consumer protection and market conduct, and a crisis management and resolution system for virtual asset activities and virtual asset service providers (VASPs). Additionally, the Government plans to establish an information sharing and judicial cooperation arrangement on virtual assets and VASPs at both the national and transnational levels.

• Gap: Lack of a risk management framework for virtual asset activities

Intervention: Kenya will develop a framework to guide and strengthen risk management for virtual asset activities and VASPs.

• Gap: Inadequate mechanisms to promote fairness, transparency and market efficiency

Intervention: Kenya will develop mechanisms to enhance consumer protection, market conduct and operations of virtual asset activities and VASPs.

• Gap: Lack of a framework to promote innovation and literacy

Intervention: Kenya Government plans to develop a framework to promote innovation in the virtual assets ecosystem. It also plans to develop a framework to promote awareness and build capacity around virtual assets and related activities.

The Virtual Asset Service Providers Bill, 2025 (VASP Bill)[5]

The bill aims to regulate the following VASPs and virtual asset activities.

• Virtual asset wallet providers who provide custodial wallets or services.
• Virtual asset exchanges that facilitate the (i) transfer and conversion services of one or more virtual assets or between virtual assets and fiat currency or (ii) sale, trade, or exchange of virtual assets for fiat currencies or for other virtual assets.
• Virtual asset payment gateway processors who arrange transactions involving virtual assets and fiat currency or between virtual assets.
• Virtual asset brokers who provide brokerage services to facilitate the exchange between one or more forms of virtual assets through virtual asset exchanges and virtual asset wallet providers on behalf of clients.
• Virtual assets investment advisors who provide investment advisory services on virtual assets, initial virtual asset offerings, and non-fungible tokens on behalf of clients.
• Virtual asset managers who manage virtual asset portfolios in accordance with mandates given by clients on a discretionary basis where such portfolios include one or more virtual assets.
• Virtual asset offering providers who issue and sell virtual assets to the public. This includes initial coin offering, tokenisation of virtual assets and issuance of stablecoins. Additionally, Kenya will regulate providers of tokenisation platforms that facilitate the issuance and secondary trading of real world assets tokens.

You need to meet stringent requirements outlined in the VASP Bill and obtain a licence to carry out these regulated virtual asset activities in Kenya. The relevant licence will be issued by the Central Bank of Kenya or the Capital Markets Authority who will be the main regulators of virtual asset activities in Kenya.

Licenced VASPs have ongoing obligation to conduct their businesses in a prudent manner and adhere to compliance requirements set out in the bill. These obligations include anti-money laundering, consumer protection, cybersecurity, and market conduct compliance measures.

Outlook

These forward-looking policy and strategy interventions to mainstream the Kenya virtual assets ecosystem into the formal economy are timely. The VASP Policy requires the Government to budget for and allocate funds needed to implement these interventions. Moreover, the policy outlines an annual monitoring and evaluation mechanism to track implementation.

If efficiently implemented, these policy interventions will provide regulatory clarity and predictability that can catalyse the growth of the Kenya virtual assets ecosystem. The VASP Bill is a good start to implement these interventions. Other priority interventions are needed. These include the development of a fair and predictable taxation framework for virtual assets aligned with the National Tax Policy and establishment of a virtual assets regulatory sandbox to encourage innovation in the virtual assets ecosystem.

Recommended Action

If you intend to offer virtual asset services in Kenya:

• Stay informed about ongoing regulatory developments and prepare to comply with the licencing and ongoing obligations.
• Assess if the virtual asset activity you currently offer or intend to offer is permissible and falls under one of the regulated activities listed in the proposed law.
• If not already registered in Kenya, get ready to incorporate an entity in Kenya that will apply for a VASP licence and maintain a registered office in Kenya.
• Anticipate and prepare for compliance with anti-money laundering, consumer protection, cybersecurity, data protection and the capital, solvency and insurance requirements that will apply to the regulated virtual asset activities and VASPs.
• Identify potential directors and principal officers who will meet the stringent fit-and-proper assessments to be carried out by the regulators. Ensure that your ultimate beneficial owner(s) meet these fit and proper requirements.
• Link up with resourceful contact persons from the vibrant Kenya fintech community including professionals advisors and business partners.

We will keep you updated of the progress of the VASP Policy, VASP Bill and other regulatory developments in this area.

[1] International Monetary Fund. Monetary and Capital Markets Department. (2025). Kenya: Technical Assistance Report-Crypto Regulation and Legislation. Technical Assistance Reports, 2025(001). Retrieved Apr 10, 2025, from https://doi.org/10.5089/9798400298233.019

[2] Ibid

[3] Financial Action Task Force. (2024). Jurisdictions under Increased Monitoring. Retrieved Apr 10, 2025, from https://www.fatf-gafi.org/content/fatf-gafi/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-february-2024.html

[4] The draft policy is available at: https://www.treasury.go.ke/wp-content/uploads/2025/01/DRAFT-NATIONAL-POLICY-ON-VAs-AND-VASPs.pdf

[5] The draft bill is available at: http://www.parliament.go.ke/sites/default/files/2025-04/THE%20VIRTUAL%20ASSET%20SERVICE%20PROVIDERS%20BILL%2C%202025%20%282%29.pdf

This article is prepared for general information. It is not, and does not aim to be, comprehensive. Given the general nature of its content, it should not be considered legal advice. For specific advice, please contact [email protected] in our Kenya office.