Kenya Eyes Crypto Legalisation After IMF Recommendations

Kenya has begun the process of legalising cryptocurrency, whose legal framework remains murky, according to Treasury Cabinet Secretary John Mbadi. An increase in cryptocurrency trade will mean a new revenue stream for the government.

The revelation from Mbadi comes barely hours after the International Monetary Fund (IMF) advised Kenya to enhance its regulatory framework for cryptocurrencies to better protect consumers and address financial risks.

Despite the ban on cryptocurrencies in Kenya, their usage has persisted in underground markets, finding ways to bypass the restrictions. However, the government now says the emergence of the digital currency offers ‘dynamic opportunities’.

The new regulations will seek to regulate the Virtual Assets (VAs), which are digital representations of value that can be digitally traded, transferred, or used for payment or investment purposes, and Virtual Asset Service Providers (VASPs) which are entities or individuals that conduct activities related to virtual assets on behalf of others.

“VAs have gained traction due to the desire for alternative investment avenues, the speed and cost-effectiveness of cross-border transactions, and their pseudonymous nature,” Mbadi asserted.

The regulations are contained in the Draft National Policy on Virtual Assets and Virtual Asset Service Providers, December 2024, and seek to safeguard the sector from risks that include money laundering, terrorism financing, and fraud.

“The Government of Kenya is committed to creating the necessary legal and regulatory framework in order to leverage opportunities presented by VAs and VASPs while managing the resultant risks,” Mbadi stated.

The new draft policy aims to establish a “fair, competitive, and stable market for VAs and VASPs” while fostering innovation and enhancing financial literacy, stated Mbadi on Friday.

According to the Governor of the Central Bank of Kenya, Kamau Thugge, there is no law that expressly prohibits trading in cryptocurrencies.

“To my knowledge, trade-in cryptocurrency has not been made illegal in Kenya, and so the fact that there is trade in it is not itself illegal,” Thugge stated in September 2023. It is important to note that the CBK does not license or regulate cryptocurrencies, it has nevertheless issued warnings about potential risks, including money laundering and terrorism financing.

Thugge noted, “When the issue of crypto became more prominent in the country in 2015, CBK issued a public notice warning Kenyans to be careful of the new legal asset whose owners were unknown and a public institution that is behind it.” In 2018, together with other regulatory agencies, the CBK issued another notice warning Kenyans not to deal with financial products and services that have not been licensed.

In what was perhaps a foreshadowing of the looming legalisation of cryptocurrencies, President William Ruto’s government introduced a 3 per cent Digital Asset Tax on cryptocurrency transactions, effective September 1, 2023, in the Finance Act of 2023.

This tax applies to all cryptocurrency transactions, including sales, purchases, and exchanges, regardless of profitability.

“Accordingly, this policy Draft National Policy on Virtual Assets and Virtual Asset Service Providers, December 2024, has been developed to guide the establishment of a sound legal and regulatory framework to enable the country to harness the benefits while addressing the risks presented by VAs and VASPs,” said Mbadi.