In recent developments from Kenya, a country that boasts a significant position in the cryptocurrency landscape of East Africa, efforts are being vigorously made toward the regulation of cryptocurrencies. Under the leadership of the Kenyan National Treasury Cabinet Secretary Prof. Njuguna Ndung’u, the government has initiated a groundbreaking move by forming a multi-agency team, which includes the central bank, to develop comprehensive regulations for cryptocurrencies, also known as virtual assets, and the companies that provide these services, known as Virtual Asset Service Providers (VASPs).
The announcement made to the National Assembly comes in the wake of growing concerns over the risks associated with unlicensed virtual asset products, prompting a stern response from the regulatory bodies. A risk assessment conducted by the Central Bank has brought to light the substantial threats of money laundering and terrorist financing that are tied to virtual assets. This assessment underscores the pressing need for stringent regulatory frameworks to mitigate these risks effectively.
Adding to the urgency, Kenya’s 2022 anti-money laundering report pinpointed virtual assets and VASPs as critical areas requiring immediate attention. This need for regulation was further underscored by a disturbing discovery by Kenyan authorities, who unearthed suspicious transactions amounting to at least $20 million in 2023. These transactions were linked to the now-suspended iris-scanning project Worldcoin, facilitated through M-Pesa withdrawals, emphasizing the vulnerabilities within the current system.
As the country with the highest level of cryptocurrency activity in the East Africa region and ranking among the top five markets across Africa, Kenya’s proactive steps towards crypto regulation are timely. Despite trailing behind Nigeria, which leads in total cryptocurrency ownership with approximately 4.4 million holders, Kenya is making significant strides. The country’s evolving approach to cryptocurrency regulation marks a notable shift from its previous stance, which was characterized by skepticism.
The transformation in Kenya’s regulatory landscape was highlighted in 2023, as the parliament engaged actively in discussions and projects relating to cryptocurrencies. This engagement was pivotal in advancing the Capital Markets (Amendment) Bill, 2023, which the National Assembly’s committee approved in December. The proposed bill, if enacted, will usher in a new era for crypto regulation in Kenya by introducing taxation measures on crypto exchanges and wallets, aligning them more closely with traditional banking transactions. This legislation not only aims to regulate but also to legitimize and integrate cryptocurrencies into the formal economic framework, reflecting a comprehensive approach to managing the burgeoning crypto market in Kenya.
