In early 2023, the finance committee at Kenya’s National Assembly started exploring how to best regulate the burgeoning digital asset sector. Two years later, the lawmakers’ efforts have culminated in the Virtual Asset Service Providers (VASP) Bill, which recently got the Presidential Assent to officially become an Act of Parliament.
The Act is one of the most comprehensive in the continent, establishing licensing and registration requirements, appointing industry regulators, laying out compliance obligations and introducing consumer protection mechanisms.
The Act ushers in a new era for VASPs in the East African nation where they can now operate within “a clear legal and regulatory framework,” Basil Ogolla tells CoinGeek.
Ogolla is a Nairobi-based digital assets lawyer serving as a director at the Virtual Assets Chamber of Commerce (VACC), a Kenyan digital assets think tank. VACC was among the industry bodies that were most involved in the formulation of the new bill alongside the Blockchain Association of Kenya (BAK).
A new era for Kenya’s digital assets industry
Kenya has had a checkered past with digital asset regulation. Initially, government efforts centered on taxation, resulting in initiatives like the much-opposed 3% digital asset tax, which was scraped following industry uproar.
However, in 2023, lawmakers welcomed industry leaders from BAK, VACC and other organizations to assist in formulating a new comprehensive framework. After dozens of townhall meetings and policy workshops nationwide collecting industry feedback, the first version of the community-informed bill was presented in early 2024. It sailed through parliament a few weeks ago and has now been signed into law by President William Ruto.
Under the new law, only companies incorporated in Kenya, or with local compliance certificates, are eligible for licensing. Licensing categories include wallet providers, trading and settlement platforms, exchanges, payment processors and tokenization platforms.
The central bank and the Capital Markets Authority are the designated regulators, but the Cabinet Secretary for the Treasury can issue subsidiary regulations to supplement the framework.
These clear laws will enable VASPs to integrate with traditional finance and access banking services, Ogolla says. Kenyan lenders have long refrained from partnering with digital asset firms for fear of regulatory repercussions. Previously, banks would even deny banking services to individuals who claimed to be working in the ‘crypto’ sector.
The Act also brings a new layer of trust and accountability, Ogolla added. The Kenyan digital asset sector has been rocked by some high-profile scams that have eroded investors’ confidence.
Under the new framework, VASPs must be transparent and disclose risks, making it easier to distinguish between the innovators and the scammers.
“This builds confidence in the market and lays the groundwork for responsible growth of Kenya’s digital economy,” Ogolla stated.
Gateway into Africa
Kenya has long ranked among the world’s most vibrant digital asset markets. Chainalysis ranked the country first for peer-to-peer trading volume in 2020 and 2021, and in the year ending June 2024, Kenyans transacted a record $3.3 billion in stablecoins.
Despite the high adoption metrics, a majority of the activity has remained in the shadows. In the year ended June 2024, for instance, the country’s taxman only collected $78 million in taxes from 384 traders, despite one report claiming over four million Kenyans own digital assets.
With the new framework, the government intends to legitimize the sector and bring this underground majority under its oversight, says Kuria Kimani, the chair of the finance committee at the National Assembly.
Kimani also believes that the Act could propel Kenya into a continental leader in digital assets. Currently, Nigeria towers over other African countries; last year, it transacted over $92 billion in digital assets, nearly three times the value of second-placed South Africa.
“We are hoping that Kenya can be now the gateway into Africa. Most of the young people between 18 and 35 years of age are now using virtual assets for trading, settling payments and as a way of investment or doing business,” the legislator said.
While the VASP Act is a landmark achievement, Kenya’s digital asset industry can’t afford to get comfortable, Ogolla warns. It must push for subsidiary legislations that “give practical effect to the VASP Act and define how the law works in day-to-day operations.”
“We are keen to see frameworks that are empowering rather than restrictive, allowing VASPs to organize themselves, comply effectively, and position Kenya as a regional hub for digital assets. The 12-month moratorium granted under the Act provides a vital window for industry players to put their houses in order, build strong governance systems and prepare for full compliance,” he added.
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Source: https://coingeek.com/kenya-president-signs-vasp-bill-into-law/
