Kenya is set to introduce legislation to legalize cryptocurrencies, marking a significant policy shift, according to Treasury Cabinet Secretary John Mbadi. Previously banned in the country, cryptocurrencies have continued to gain traction through underground use. The new approach aims to regulate and harness the potential of virtual assets while addressing their inherent risks.
In a statement, Mbadi emphasized Kenya’s reputation as a leader in financial innovation, citing its history with mobile money services like Safaricom’s M-Pesa. He highlighted the opportunities and challenges brought about by Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs), underscoring the need for a regulatory framework to manage risks like money laundering, terrorism financing, tax evasion, and fraud.
Mbadi outlined that the forthcoming policy seeks to establish a competitive and stable environment for VAs and VASPs, fostering innovation and enhancing financial literacy. He noted the global trend of countries adopting regulatory frameworks for cryptocurrencies, with examples including Morocco, the United States, and Russia. The policy reflects Kenya’s ambition to position itself as a key player in the global digital finance ecosystem.
Kenya’s new framework will balance fostering innovation with safeguarding consumers and financial systems. According to the National Risk Assessment Report on VAs and VASPs conducted in September 2023, the popularity of cryptocurrencies among Kenyans aged 18 to 40 stems from their speed, cost efficiency, and cross-border functionality. However, the absence of a regulatory framework has led to risks like cybercrime, weak governance, and uncontrolled capital flight.
The Draft National Policy on Virtual Assets and Virtual Asset Service Providers, slated for release in December 2024, incorporates lessons from international regulatory approaches. It aims to create a flexible framework for domestic and global cooperation while ensuring financial stability, consumer protection, and risk management.
Mbadi acknowledged the transformative impact of distributed ledger technology (DLT), such as blockchain, which has fueled the growth of cryptocurrencies since Bitcoin’s inception in 2009. He also highlighted the importance of addressing risks demonstrated by incidents like the collapse of FTX Trading Ltd in 2022.
