Cryptocurrency has been a topic of significant debate and evolution worldwide, and Kenya is no exception. The journey of cryptocurrency regulation in Kenya is a tale of transformation from initial skepticism and outright opposition to eventual acceptance and legalization.
In the early 2010s, as cryptocurrencies like Bitcoin began gaining global attention, Kenya’s financial landscape was primarily dominated by traditional banking systems and mobile money services like M-Pesa. The Central Bank of Kenya (CBK) was initially wary of cryptocurrencies, citing concerns over their potential use in illegal activities, lack of consumer protection, and the absence of a regulatory framework.
In December 2015, the CBK issued a public notice warning Kenyans against the use of virtual currencies. The notice highlighted the risks associated with cryptocurrencies, including their volatility, potential for fraud, and lack of legal recourse in case of disputes. This stance was reflective of a broader global skepticism towards digital currencies at the time.
Despite the CBK’s warnings, the adoption of cryptocurrencies in Kenya continued to grow. A report by the United Nations Conference on Trade and Development (UNCTAD) revealed that, by 2022, nearly 10% of Kenyans owned some form of cryptocurrency. This growing interest was driven by several factors, including the desire for financial inclusion, the potential for high returns, and the increasing popularity of blockchain technology.
The Kenyan government’s stance began to shift as it recognized the potential benefits of cryptocurrencies and blockchain technology. The success of M-Pesa had already demonstrated the transformative power of digital financial services in promoting financial inclusion. Cryptocurrencies were seen as a natural extension of this digital revolution.
In 2018, the Kenyan government established a task force to explore the potential of blockchain and artificial intelligence. The task force’s mandate included examining how these technologies could be leveraged to improve government services, enhance transparency, and drive economic growth. This move marked the beginning of a more open and exploratory approach towards digital currencies. A significant shift occurred in September 2023 when the country completed an assessment of money laundering risks tied to virtual assets.
By 2024, the government had made significant progress in understanding the cryptocurrency landscape. In December 2024, the National Treasury unveiled a Draft National Policy on Virtual Assets and Virtual Asset Service Providers, along with the Virtual Asset Service Providers Bill. According to the draft, “the main objective of this policy is to guide the development of a fair, competitive, and stable market for virtual assets (VAs) and virtual asset service providers (VASPs) in Kenya.” These documents outlined a comprehensive regulatory framework governing VA activities and VASPs, aimed at licensing, consumer protection, and cybersecurity.
The proposed regulations included several key provisions:
- Licensing Requirements: Virtual asset providers, including cryptocurrency exchanges and wallet providers, would need to obtain licenses from designated regulators such as the CBK and the Capital Markets Authority. This measure is aimed to ensure that only reputable entities could operate in the market.
- Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT): Licensed entities would be required to comply with strict AML and CFT measures to prevent the misuse of cryptocurrencies for illegal activities.
- Consumer Protection: The regulations emphasized the need for robust consumer protection measures, including safeguarding users’ funds and personal data.
- Cybersecurity: The framework also included provisions for ensuring the cybersecurity of VASPs to protect against hacking and other cyber threats.
The government opened the draft regulations for public consultation, inviting feedback from various stakeholders, including industry players, consumer groups, and the general public. This inclusive approach was aimed at ensuring that the final regulations would be well-rounded and address the concerns of all parties involved. The draft is open for public comment until January 24, 2025.
The evolution of cryptocurrency regulation in Kenya is a testament to the dynamic nature of financial innovation and the importance of adaptive policymaking. From initial opposition to eventual acceptance, Kenya’s journey reflects a broader global trend towards recognizing the potential of digital currencies. The mobile banking service, M-PESA, was established in Kenya in 2007 and, according to Forbes, an astonishing 59% of Kenya’s GDP flows through M-PESA. Kenya obviously hopes that the care with which it has approached cryptocurrency regulation will pave the way for another success and allow the country to become a leader in Africa of the digital financial revolution, leveraging the power of cryptocurrencies to drive economic growth and financial inclusion.
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Read the original publication at Baker McKenzie
