The Treasury has projected that the government will budget about KSh 1.82 billion for the implementation of a draft policy on digital assets such as crypto, which aims to regulate the market and prevent potential risks of money laundering and tax evasion.
- In the proposed policy, Treasury estimates a KSh 1bn budget for the formulation of a comprehensive legal framework and KSh 400mn for the promotion of financial innovation and literacy in the virtual asset market.
- The Treasury also expects that the development of mechanisms to protect consumers and operations in the crypto market would need KSh 120 million to implement.
- The policy also includes a proposed KSh 300mn to alleviate existent risks, such as cyber security concerns and data privacy violations, in the Kenyan crypto market.
“The policy takes account of regulatory approaches from various jurisdictions and provides a framework that is adaptive and flexible for domestic and international cooperation, compliance, consumer protection, financial innovations, and management of risks,” Treasury CS John Mbadi said.
According to data from Statista, over 700,000 Kenyans use cryptocurrency and the value of the market is set to hit US$40 million this year.
From Resistance to Acceptance
Kenya’s crypto market has largely been at the periphery of regulation due to the atmosphere of mistrust within financial bodies like the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA). In 2015 when the market was taking off, CBK issued a public notice warning Kenyans against trading in the decentralized asset. They also barred commercial banks from dealing in virtual currencies.
In 2020 when crypto scams permeated the financial sphere, financial regulators deepened their distrust in crypto – warning Kenyans against trading in unlicensed financial products. The nascent crypto market remained bullish in its ascent, buoyed by the global acceptance and the surging prices of virtual assets. CMA, in an amendment bill in 2023, sought to add ‘digital currencies’ to the definition of securities and the Kenya Revenue Authority (KRA) could viably tax exchanges of the assets.
In November last year, KRA announced that it collected KSh 10 billion from crypto dealers in the financial year ended June 2024. This was facilitated by the 3% tax on the transfer and exchange of digital assets introduced in the Financial Act 2023.
Efforts for regulation were led by the Blockchain Association of Kenya (BAK), which collaborated with different stakeholders to form the Virtual Assets Service Provider (VASP) Bill, 2024. The bill, presented to the National Assembly on March 2024, sought to create a formal office tasked with the responsibility to oversee the whole crypto market in Kenya.
“The cross-border nature of Virtual Assets and Virtual Assets Service Providers further compounds the risk, as noted in the VAs/VASPs ML/TF National Risk Assessment Report for Kenya, which was finalised in September 2023. These risks underscore the urgent need for a comprehensive legal and regulatory framework to govern VAs and VASPs to ensure the safety and integrity of Kenya’s financial system,” CS Mbadi said.
The Long View
According to Treasury, the policy framework will be tailored to reflect how other jurisdictions have built safeguards in the crypto market. Kenya intends to integrate the systemic functionalities from countries like the US, Singapore, UK, Mauritius, France, and South Africa – which have advanced their regulation capacities in the sector.
This includes introducing different regulatory agencies to specifically oversee different forms of virtual assets, establishing regulatory sandboxes to allow tethered innovation in the sector, complying with guidelines from the Financial Action Task Force (FATF), and structuring taxation based on the variation of scale and value.
Treasury has invited stakeholders to comment on the Draft National Policy on Virtual Assets and Virtual Asset Service Providers before January 29th, 2025.
