Kenya Passes Virtual Asset Law to Oversee Crypto Trading Platforms

• Kenya’s law grants oversight to the Central Bank and Capital Markets Authority.
• Licensed firms must maintain local offices with directors and compliance audits.
• The legislation aligns Kenya with U.S. and U.K. models to fortify investor protection.

Kenyan lawmakers have approved a bill regulating digital assets, including cryptocurrencies, in a bid to attract investment and establish clear legal standards for the sector. The Virtual Asset Service Providers Bill, passed last week, is now awaiting President William Ruto’s assent, according to Finance Committee Chair Kuria Kimani. He said the move positions Kenya among the few African nations with comprehensive crypto legislation, joining South Africa in leading the continent’s regulatory framework.  

Licensing and Oversight Framework

Under the new law, the Central Bank of Kenya will oversee the issuance of stablecoins and other virtual assets. Meanwhile, the Capital Markets Authority will license and monitor crypto exchanges and digital trading platforms.

According to Reuters, the bill addresses growing concerns over unregulated cryptocurrency activities and aims to protect investors. It introduces mandatory licensing, requiring firms to operate transparently within the Kenyan jurisdiction.

Lawmakers believe this framework will encourage global platforms, such as Binance and Coinbase, to expand their operations in Kenya. Kuria Kimani said previous talks with these exchanges signaled strong investor interest, adding, “We are hoping that Kenya can now be the gateway into Africa.”

The legislation also seeks to control potential risks posed by U.S. dollar-backed stablecoins. International financial bodies, including the Financial Stability Board, have warned that such assets could threaten weaker national currencies if left unchecked.

Compliance and Local Presence Requirements

The proposal requires that every virtual asset provider licensed to operate in Kenya must also maintain a physical office in that country. Moreover, it requires companies to elect at least three human directors to their boards. The legislators argued that this law would make the operators accountable and, at the same time, limit the influence of offshore operators who have little presence in the country.

The measures, as mentioned earlier, not only grant regulators more powerful authority but also ensure that local decision-makers are accountable under Kenyan law. Although certain crypto stakeholders have resisted the requirement of a physical office, contending that digital operations do not necessitate a local base, lawmakers have still emphasized that a regional presence is necessary for transparency and enforcement.

To make sure the law is followed, the bill has made it mandatory for the virtual asset service providers to adopt the highest AML/CFT standards. Additionally, all firms will be required to segregate customer holdings, maintain their bank accounts in Kenya, appoint compliance officers, and have their IT systems audited and certified by an independent auditor.

Related: Stablecoins May Drain $1 Trillion from Emerging Banks by 2028

Global Standards and Future Prospects

Kenya’s law borrows from established regulatory models in the United States and the United Kingdom. Kimani said the framework draws lessons from these jurisdictions to ensure global best practices.

The stakeholders also suggested establishing a recognition system for foreign-licensed stablecoins. Only issuers that belong to recognized jurisdictions will be allowed, and they must comply with strict rules regarding reserves, custody, and audits. Among these rules are the requirements of full collateralization and the use of Kenyan custodians licensed by the government for asset backing.

While the country awaits President Ruto’s potential signature on the bill, many people are wondering if the legal clarity will give a boost to Kenya’s status as Africa’s fintech hub. This initiative builds upon the financial innovations already present in the Kenyan market, such as the M-Pesa system, a mobile-based payment system that has improved access to financial services for millions of people. By giving the crypto industry legal backing, the Kenyan legislators are hoping to not only gradually increase the country’s participation in the African digital economy.