Kenya’s Central Bank Introduces Policy to Regulate Cryptocurrency Market
Kenya is taking significant steps to regulate its cryptocurrency market. The National Treasury has unveiled a draft policy aimed at overseeing digital assets like cryptocurrencies, with a proposed budget of approximately KSh 1.82 billion.
Budget Breakdown:
- Legal Framework Development: KSh 1 billion is allocated to establish comprehensive regulations for the crypto market.
- Financial Innovation and Literacy: KSh 400 million is designated to promote financial innovation and enhance literacy in the virtual asset sector.
- Consumer Protection Mechanisms: KSh 120 million is set aside to develop systems that safeguard consumers and ensure secure operations within the crypto market.
- Risk Mitigation: KSh 300 million is earmarked to address existing risks, including cybersecurity threats and data privacy concerns in Kenya’s crypto landscape.
Treasury Cabinet Secretary John Mbadi emphasized that the policy draws from international regulatory approaches, aiming to create an adaptive framework that fosters cooperation, compliance, consumer protection, and financial innovation while managing associated risks.
Expected Transition in Regulation
Kenya’s journey with cryptocurrency has evolved from initial skepticism to active regulatory efforts. In 2015, the Central Bank of Kenya (CBK) issued warnings against trading in decentralized assets and prohibited commercial banks from engaging with virtual currencies.
The rise of crypto-related scams in 2020 intensified regulatory concerns, leading authorities to caution against unlicensed financial products. Despite these challenges, the crypto market in Kenya continued to grow, propelled by global acceptance and increasing valuations of virtual assets
In 2023, the Capital Markets Authority (CMA) proposed amendments to classify digital currencies as securities, enabling the Kenya Revenue Authority (KRA) to tax crypto exchanges effectively.
By November 2024, the KRA reported collecting KSh 10 billion from crypto dealers for the financial year ending June 2024, following the introduction of a 3% tax on digital asset transfers and exchanges as per the Finance Act 2023.
Industry-Led Regulatory Initiatives
The Blockchain Association of Kenya (BAK) has been instrumental in advocating for regulation. Collaborating with various stakeholders, BAK developed the Virtual Assets Service Provider (VASP) Bill, 2024. Presented to the National Assembly in March 2024, the bill proposes establishing an official body to oversee Kenya’s crypto market comprehensively.
CS Mbadi highlighted the cross-border nature of virtual assets and service providers, which amplifies risks such as money laundering and terrorism financing. He underscored the urgent need for a robust legal and regulatory framework to ensure the safety and integrity of Kenya’s financial system.
Learning from Global Counterparts
Kenya’s proposed policy framework seeks to incorporate best practices from countries with advanced crypto regulations, including the United States, Singapore, the United Kingdom, Mauritius, France, and South Africa. This approach involves:
- Specialized Regulatory Agencies: Establishing bodies to oversee various forms of virtual assets.
- Regulatory Sandboxes: Creating controlled environments that allow for innovation within the sector.
- Compliance with International Guidelines: Adhering to standards set by organizations like the Financial Action Task Force (FATF).
- Tailored Taxation Structures: Implementing tax systems that consider the scale and value variations within the crypto market.
The Treasury has invited stakeholders to provide feedback on the Draft National Policy on Virtual Assets and Virtual Asset Service Providers, with submissions open until January 29, 2025.
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