Kenya has launched its first comprehensive digital asset bill and is seeking public feedback amid the International Monetary Fund’s (IMF) call for the country to update its outdated ‘crypto’ oversight framework.
The country’s National Treasury is behind the new bill, which aims to regulate the use of virtual assets (VAs) and the virtual asset service providers (VASPs) that offer related services. Treasury Cabinet Secretary John Mbadi told the media that the bill was necessitated by the rapid use of digital assets locally.
“Kenya’s financial sector is a beacon of innovation and growth in Africa. The Government of Kenya is committed to creating the necessary legal and regulatory framework in order to leverage opportunities presented by VAs and VASPs while managing the resultant risks,” he stated.
Kenya is one of Africa’s biggest digital asset markets and has ranked high globally for peer-to-peer (P2P) trading and overall adoption over the years. However, the country, like many others in Africa, has yet to formally regulate the sector. Instead, it has focused on taxation: in the last financial year, the government collected $78 million from the sector.
IMF calls for regulatory clarity
The proposed bill came just two days after the IMF called on the East African nation to update its digital asset regulation. In a technical assistance report requested by Kenya’s Capital Markets Authority (CMA), staff of the IMF advised the country to implement a clear legislative framework for the sector or risk lagging behind its peers in Africa.
“The development of Kenya’s regulatory and supervisory framework for crypto assets should be aligned with international frameworks and standards,” the report stated. “In developing the regulatory framework, particular emphasis should be placed on the provision of regulatory clarity allowing the domestic crypto asset sector to develop in a transparent way and enabling the effective supervision by the authorities.”
The IMF’s recommendations included conducting a comprehensive analysis of the current market, conducting ‘crypto’ financial literacy, coordinating the relevant authorities to oversee the sector, beefing up the technical and human resources within the regulators, and implementing an adequate legal framework.
“In view of the lack of specific rules on crypto assets in parent laws – which is reflective of a lack of an overall political stance on crypto assets – the CMA and the CBK’s [Central Bank of Kenya] rulemaking in the area of crypto assets has thus far remained limited and no legally binding, formal instruments that would specifically or expressly cover crypto assets have been issued by either institution,” the IMF stated.
The IMF report further criticized the central bank’s approach, where it issued a circular that serves as a “de-facto ban of directly investing in digital assets or facilitating activities in digital asset markets.” The 2015 circular noted that digital assets don’t qualify as legal tender under Kenyan law. This, the IMF says, cuts off the official regulated financial channels from facilitating digital asset transactions and, consequently, denies regulators access to the ins and outs of the industry.
“This is problematic since it further obfuscates the already untransparent situation related to the crypto assets market in Kenya due to the fact that the regulated part of the financial sector officially cannot engage in (and hence be used to report on) the crypto markets.”
The Washington-based organization says Kenya can choose to draft a new comprehensive legal framework, make targeted legal amendments followed by legislative reforms, issue regulations without any legislative changes, or use exemptions for certain service providers.
In the footsteps of M-Pesa
It’s not clear if the proposed regulatory framework was informed by the IMF. It could also have been influenced by the Blockchain Association of Kenya (BAK), which was charged with helping parliament draft new digital asset laws in late 2023; BAK has not issued any statement on the new proposals.
However, according to the Treasury, the framework is inspired by a desire to lead Africa in financial technology with digital assets, as the East African nation did with mobile money. The world-renowned M-Pesa, which has been around for nearly two decades, has revolutionized mobile money across Africa and beyond. In Kenya, the service has 34 million clients, nearly 100% of the adult population.
“From the groundbreaking mobile money revolution pioneered by the launch of mobile-based financial services in 2007 to the robust financial system, the country has consistently pushed the boundaries of financial inclusion through technological advancements,” Mbadi stated.
The Treasury Secretary acknowledged that digital assets have a role to play in Kenya’s digital payments sector. According to the IMF, local firms have increasingly been using digital assets for cross-border payments as the mainstream alternatives remain expensive and slow.
However, Kenya must mitigate against the risks digital assets pose, Mbadi noted. This includes money laundering, tax evasion, fraud, scams, terrorist financing, and other forms of cybercrime.
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