Kenya has unveiled a draft proposal aimed at regulating cryptocurrencies, signalling a shift from the Central Bank of Kenya’s (CBK) historically cautious stance. The proposal, titled National Policy on Virtual Assets and Virtual Asset Service Providers, is open for public feedback until 24 January 2025.

A Framework for Fair and Stable Markets

Treasury Cabinet Secretary John Mbadi announced on 10 January that the government is committed to creating a robust legal and regulatory framework for cryptocurrencies. The draft policy seeks to establish a “fair, competitive, and stable market” for virtual assets (VAs) and virtual asset service providers (VASPs) while addressing potential risks.

The document outlines comprehensive plans to mitigate issues such as money laundering, terrorism financing, and consumer protection. It also aims to develop clear standards and procedures to govern VA activities and VASPs in Kenya.

“The main objective of this policy is to guide the development of a fair, competitive, and stable market for virtual assets and virtual asset service providers,” the proposal states.

Public Consultation

The proposal invites public input until 24 January. If adopted, Kenya will join countries such as South Africa and Nigeria, which have already introduced cryptocurrency regulations.

A Changing Stance on Cryptocurrencies

Kenya’s approach to cryptocurrencies has evolved significantly. While not banned, their use has faced scepticism. In December 2015, the CBK warned the public against using cryptocurrencies like Bitcoin, citing risks of fraud, lack of legal protections, and potential misuse in illicit activities.

“Bitcoin and similar products are not legal tender nor are they regulated in Kenya. The public should therefore desist from transacting in Bitcoin and similar products,” the CBK cautioned at the time.

However, a turning point came in September 2023, when Kenya completed a risk assessment on money laundering and terrorism financing related to virtual assets and VASPs. The report recommended regulating virtual asset activities to mitigate risks and enhance the country’s anti-money laundering framework.

Kenya’s Growing Role in Crypto Adoption

Kenya ranks 21st globally in the Chainalysis Crypto Adoption Index for 2024, highlighting its growing prominence in the crypto sector. The country’s crypto activities are driven in part by stablecoins, which account for nearly half of all transactions in sub-Saharan Africa.

Widespread currency devaluation has made stablecoins particularly appealing. Between July 2023 and July 2024, Kenya recorded $3.3 billion in stablecoin transactions. Nigeria leads the region with $21.8 billion in transaction volume, followed by South Africa at $13.5 billion and Ghana at $3.9 billion.

As Kenya moves forward with its draft policy, the country appears poised to strengthen its position in the global cryptocurrency market while addressing critical regulatory and security challenges.