The National Treasury and Economic Planning has released a draft policy framework for Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs) aiming to establish a comprehensive regulatory environment that balances innovation with risk management.
The policy acknowledges a number of issues, such as money laundering, terrorism financing, cybersecurity threats, and consumer protection concerns, while addressing Kenya's increasing use of virtual assets.
The framework aims to guarantee prudent risk management, encourage equitable and effective markets, direct the creation of legal frameworks, and improve financial literacy regarding virtual assets.
The policy is informed by international standards and best practices, drawing from the experiences of various jurisdictions and guidelines from bodies such as FATF, FSB, BCBS, and IOSCO.
The policy's development follows Kenya's 2023 VA/VASP ML/TF National Risk Assessment and marks a shift from the previous cautionary stance taken by financial regulators towards a more structured approach to virtual asset regulation.
The move aligns Kenya with other African nations like South Africa, which has already approved 248 crypto asset service providers as of December 2024, and Nigeria, which recently established rules for digital asset issuance and mandated VASPs to set up local offices.
If implemented correctly, it will position Kenya as a key player in the global digital finance ecosystem, especially considering that 8.5% of Kenyans already owned cryptocurrencies by 2022.
The framework's timing is strategic, coming after the controversial Worldcoin episode and the implementation of a 3% digital asset tax, demonstrating Kenya's commitment to balancing innovation with regulatory oversight.
The success of this policy will hinge on its effective implementation, requiring robust coordination among various agencies and continuous adaptation to the dynamic nature of the virtual asset ecosystem.
Its impact on Kenya's financial landscape will be closely watched by investors, entrepreneurs, and consumers alike.
Meanwhile, South Africa has emerged as Africa's leader in digital finance by becoming the first nation on the continent to license cryptocurrency exchanges.
The Financial Sector Conduct Authority (FSCA) has now granted licenses to 248 cryptocurrency firms.
This regulatory milestone, combined with the expansion of the South African Reserve Bank's CBDC pilot Project Khokha, demonstrates the country's commitment to modernizing its financial landscape using blockchain technology and digital innovation to improve cross-border payments, financial inclusion, and create a secure environment for digital asset trading.
The country has also taken significant steps in developing blockchain-based cross-border payment systems through partnerships with other Southern African Development Community nations, while major South African banks like Standard Bank and Absa Group are exploring collaborations with DeFi platforms to offer innovative financial products.
These initiatives are designed to merge traditional banking stability with decentralized finance efficiency, particularly benefiting SMEs and rural communities by providing more accessible and affordable financial services, while positioning South Africa as a model for digital finance integration across the continent.