It has recently come to light that the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) will jointly regulate the cryptocurrency industry upon the approval, assent and gazettement of the Virtual Assets Service Providers Bill. This is a shift from the position that the CBK took in 2015, where it issued a caution. The caution summarily indicated that cryptocurrencies such as Bitcoin and other similar virtual currencies were illegal and not regulated by CBK. This stance was justified by insufficient data and studies to show the benefits of cryptocurrencies. In addition, such virtual assets are untraceable and thus could be used to perpetuate money laundering and terrorism financing.  Lastly, CBK would have no mechanisms of providing redress if the currencies collapsed. This far, there has been no legal tender for virtual assets of any nature.

CMA and its dealings with virtual assets thus far

With CBK’s stance in mind, the Capital Markets Authority has been more overt in its approach to virtual assets by issuing a warning against participation in the initial coin offerings. However, in its interpretation of what is perceived by the Capital Markets Act, the CMA implies that cryptocurrencies can be included in the definition of a “security”, thereby offering some sort of regulation of virtual assets, a position which is contradictory to its initial stance.

CMA justified its position by relying on the Howey Test in defining securities.  The test seeks to determine whether a transaction qualifies as an investment contract and, therefore, is considered a security. The test was broken down into four parts. First, there is an investment of money into a common company/ enterprise; there is an expectation of profits which are derived from third-party efforts. Further, the court, in the case Wiseman Talent Ventures vs. Capital Markets Authority [2019] eKLR (the Kenicoin Case), held the opinion that, while there is no law regulating digital currencies, exchanges and related activities in Kenya, the absence does not ouster jurisdiction of the general regime of law under the Capital Markets Act and the application of the “Howey Test” in defining securities.

In 2019, due to increased activity with cryptocurrency, CMA created regulatory sandboxes to innovate and test certain virtual assets. The sandboxes enable companies to try out new technology, such as virtual assets, for trading and settling digitised bonds and stocks. So far, CMA has admitted 17 companies. Six have exited, but crypto-related ones have remained relatively rare. Of the 17, only three deploy the crypto technology and they are yet to graduate from the testing phase.

Salient features of the draft legislation 

The National Treasury released a Draft National Policy based on its research regarding Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs) in December 2024. The main aim of the policy is to guide the development of the legal framework governing VAs and virtual assets services. The policy is also meant to promote a fair and efficient market for VAs and VASPs, ensure their sound risk management and promote financial literacy and innovation.

Kenya has witnessed increased adoption of VAs for payments, remittances, and investments over the years. VAs present opportunities to promote digital finance, boost e-commerce, facilitate international trade, and even create a new class of digital jobs. However, their benefits have stemmed from cybersecurity risks, data privacy risks, and fraud in the country. Further, the VASP activities are not limited to Kenya, and therefore, some of the providers operating locally are not registered and/or licensed in Kenya, hence posing potential risks related to, but not limited to, money laundering, terrorism financing or proliferation financing. Despite Kenya’s overarching Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) legislative framework that addresses broad money laundering and terrorism financing risks, there is no policy governing VA activities and service providers.

The Authority, as per Section 2 of the VA and VASP Bill, 2025, means the Capital Markets Authority established by section 5 of the Capital Markets Act, CAP 485. The Authority has been included in the Bill since it promotes, regulates and facilitates the development of an orderly, fair and efficient capital market in Kenya.

Virtual Assets will refer to a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes. This does not include digital representation of fiat currencies, e-money, securities and other financial assets. This may include asset-referenced tokens, crypto assets, non-fungible tokens (NFT), real-world asset tokens, Stablecoins, security tokens, and any other token generated through distributed ledger technology for purposes of investment, buying, selling, trading and/or speculation. Virtual assets facilitate cross-border transactions, allowing users to send and receive funds quickly and cost-effectively across different geographic regions. Virtual assets transcend national borders and traditional banking hours, enabling seamless peer-to-peer transactions on a global scale.

A virtual asset service provider or VASP  includes a trade or business that provides services related to a virtual assets exchange. This includes platforms which facilitate the issuing, listing, buying and selling of virtual assets, exchange between one or more forms of virtual assets, and trading, including peer-to-peer trading of virtual assets. 

VASPs also provide virtual assets custodial services; operate as an on-ramp or off-ramp service provider facilitating exchange or conversation from virtual assets to fiat currency and vice-versa; operate as a virtual assets payment service provider or transfer of assets utilising virtual assets; provide custodial wallet services; operates as an issuer of token offerings (initial coin offering); operates as a virtual assets broker-dealer that participates in and provides advisory services related to an issuer’s offer or sale of a virtual asset as may be prescribed. VASPs do not include services provided in a fully decentralised manner without any intermediary. They serve as on-ramp and off-ramp service providers, facilitating the conversion between virtual assets and fiat currency. They enable users to deposit fiat currency to purchase virtual assets and withdraw virtual assets to convert into fiat currency, bridging the gap between traditional and digital finance.

The scope of the Bill covers any virtual asset service provider or token issuer conducting business in Kenya or offering services to Kenyan consumers, as well as individuals involved in the creation, promotion, management, organisation, sale, or redemption of an initial token offering, whether as organisers, issuers, founders, purchasers, or investors. Additionally, anyone providing virtual asset services to Kenyans, regardless of their physical location, is also covered under these provisions.

Conclusion

Kenya’s shift towards regulating virtual assets and service providers reflects a growing recognition of their role in the financial landscape. The collaboration between CBK and CMA, along with the new policy framework, aims to balance innovation with consumer protection, addressing risks like money laundering and fraud. By including VASPs in the regulatory scope, Kenya is setting the stage for a more secure and structured digital finance environment, supporting both growth and safety in the cryptocurrency sector.