Legislation proposing regulation for Virtual Asset Service Providers (VASPs) is tabled before the Kenyan parliament
Kenya Embraces Crypto Regulations with VASP Bill 2025
In a significant move towards embracing the digital asset industry, Kenya has introduced the Virtual Assets Service Providers Bill 2025 (VASP Bill 2025). This comprehensive legislation establishes a regulatory framework for virtual asset service providers (VASPs), marking a turning point in Kenya's approach to cryptocurrencies.
The VASP Bill 2025, presented to Kenyan legislators on April 4, mandates strict licensing, rigorous anti-money laundering (AML) and counter-terrorism financing (CFT) compliance, extensive customer data management, and operational controls. These measures aim to legitimize the virtual asset industry in Kenya, balancing innovation with risk mitigation and consumer protection.
Under the new legal regime, all entities offering virtual asset services in Kenya must obtain a license from the relevant regulatory authorities, primarily the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK). Only recognized legal entities, such as limited liability companies, can be licensed as VASPs to ensure institutional accountability.
The Bill defines virtual assets as digital representations of value that can be digitally traded or transferred and used for payment or investment, but excludes fiat currencies, e-money, securities, and other financial assets. Covered services include wallet provision, exchange services (fiat-to-crypto, crypto-to-crypto), payment processing, brokerage, investment advisory, initial virtual asset offerings (IVOs), mining, stablecoin issuance, tokenization, transfer, and conversion.
Licensed VASPs must establish robust internal systems for AML/CFT, conduct thorough customer due diligence, maintain records, and report suspicious transactions in line with Kenyan laws. Cybersecurity and data protection frameworks must be implemented to safeguard customer data and ensure operational resilience. The Bill requires VASPs to collect detailed customer data such as names, physical addresses, contact information, and transaction histories, which must be maintained and shared with the CMA for inspection, fulfilling international standards such as the FATF’s “Travel Rule” to counter illicit finance activities.
The Bill enforces minimum capital requirements and operational guidelines designed to build investor confidence and ensure VASPs operate under prudent financial and risk management standards. While the Bill originally proposed high penalties (up to 10 million KES fines), amendments have moderated these fines with a view to supporting fintech innovation and startups. Penalties are scalable and aligned with global standards and local fintech regulatory frameworks.
Kenya is not alone in its efforts to regulate the virtual asset industry. Other African countries, such as Morocco and Ghana, are still in the process of creating legal rules to guide crypto usage. South Africa is the most advanced in this process, having issued more than 240 licenses, and Nigeria is not far behind, having opened a sandbox for VASPs and issued provisional licenses to two firms last year.
The VASP Bill 2025 proposes that licensed VASPs must open physical offices in Kenya and implement AML/CFT measures. Only licensed entities can issue initial coin offerings (ICOs) under the new legal regime, after securing regulatory approval.
The introduction of the VASP Bill 2025 follows a series of events that led the Kenyan government to no longer ignore cryptocurrencies. The launch of the controversial decentralized ID protocol Worldcoin and crypto scams such as Argo and BTCM in Kenya prompted the government to take a more active role in regulating the industry. Following the uproar over the 3% digital asset tax (DAT), which was described as stifling and exceeding the global average, the Kenyan government began talks with stakeholders in the Kenyan crypto industry towards the establishment of actual crypto regulations.
A Kenyan-based blockchain advocacy group, the Virtual Assets Chamber of Commerce (VACC), submitted policy recommendations to the technical committee on crypto regulations. The VACC also asked for the introduction of a Kenyan shilling-pegged local stablecoin to reduce the reliance on the United States dollar.
In 2023, the Kenyan government introduced the contentious 3% digital asset tax (DAT) as part of its amended Finance Act, signifying legal recognition for digital assets in the country. The Kenyan National Treasury aims to bring Virtual Asset Service Providers (VASPs) under the regulatory purview of the Kenyan Capital Markets Association and the Central Bank of Kenya. In December 2024, the Kenyan National Treasury released draft guidelines for VASPs in the country and called for public input on the imminent crypto regulations. Kenya is the latest African country to introduce a licensing program for VASPs to operate legally within its borders.
[1] https://www.cma.or.ke/ [2] https://www.centralbank.go.ke/ [3] https://fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html [4] https://www.cma.or.ke/wp-content/uploads/2022/02/VASP-Bill-2025-Summary.pdf [5] https://www.cma.or.ke/wp-content/uploads/2022/02/VASP-Bill-2025-Explanatory-Memorandum.pdf
- Africa is also considering crypto regulation, with countries like Morocco, Ghana, South Africa, and Nigeria following Kenya's lead.
- Under the VASP Bill 2025, only recognized legal entities can be licensed as Virtual Asset Service Providers (VASPs) in Kenya.
- The new regulations demand stringent AML/CFT compliance, cybersecurity measures, and customer data management from licensed VASPs in Kenya.
- Kenya's VASP Bill 2025 defines digital assets as digital representations of value, excluding fiat currencies, e-money, securities, and other financial assets.
- The bill outlines covered services such as wallet provision, exchange services, payment processing, brokerage, investment advisory, and initial virtual asset offerings (IVOs), among others.
- BTCM and Argo crypto scams, along with the controversial Worldcoin decentralized ID protocol, were catalysts for Kenyan government intervention in the crypto industry, leading to the introduction of the VASP Bill 2025.
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