The National Treasury has published the Virtual Asset Service Providers Bill, 2025, that aims to regulate crypto firms by requiring them to set up offices locally, seek licenses, and have their executives and boards vetted by regulators.
- The Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK) will be the regulatory bodies tasked with the responsibility to provide licenses to crypto firms and supervising financial transactions.
- For a firm to be licensed, the proposed legislation notes that it needs a ‘specified premise’ with records and documentation that can be accessed by regulators.
- The immense rise in popularity for cryptos like Bitcoin and Ethereum, even finding favour with governments, has seen the Kenyan government join the fray and discard its long-standing skepticism on cryptos.
“The relevant regulatory authority, in determining whether to approve the application from a person in subsection (1), shall consider matters set out in section 12 and whether the applicant meets the prescribed cyber security measuresas provided for under the Computer Misuse and Cybercrimes Act,” the bill states.
Regulators will award licenses to virtual asset firms based on the size, scope and complexity of the virtual asset service, the technology employed in running it, the knowledge, expertise and experience of the applicant, and the safeguards in place to prevent money laundering and client data pilferage.
The government also plans to take an active role in the corporate leadership of crypto companies seeking licenses in Kenya. The regulators will vet their executives and directors to ensure their professional qualifications match with the tasks they will undertake.
“The board of directors of a licensee shall comprise of natural persons only and a director shall not serve in more than one board,” the bill states. “The relevant regulatory authority may from time to time prescribe the eligibility criteria for the person applying or being designated to become a chief executive officer.”
The Long View
The proposed law comes at a time when the virtual asset glows in fortune worldwide.
After the Kenya Revenue Authority (KRA) announced late last year that it bagged a significant amount in taxes from the sector, the government has been looking for ways to entrench its control in the nascent financial sphere. But cryptocurrency is not issued by a central authority, making it difficult for governments to manipulate and control. However, due to the unsupervised nature of many digital financial assets, they are also elaborate pathways for transactions in illegal trade.
The requirement to operate physical local offices is going to be a tough one for regulators to implement. Many crypto firms across the world don’t have physical offices or official headquarters, and the requirement to have accessible documentation may also go against some of the founding principles on which cryptocurrency is built on.
The requirements may also be hard to implement due to the difference between the fast changes in the technology space and the slow pace of government policies and regulation, which often see the latter playing catch up. There are limitations in trying to control digital assets with rules borrowed from fiat and physical assets, which can be limited by physical boundaries.
