Kenya’s National Treasury has released draft regulations aiming to establish a comprehensive framework for virtual asset service providers (VASPs), bringing new licensing, reserve, and oversight standards for the country’s crypto sector. The Treasury, responsible for managing Kenya’s public finances and shaping financial policy, has invited public feedback on the proposals until April 10. The new rules are set to come into force under the Virtual Asset Service Providers Act, which takes effect from November 4, 2025.
Regulatory Process Linked To FATF Grey Listing
The draft regulations emerge after Kenya’s placement on the Financial Action Task Force (FATF) “grey list” in February 2024, reflecting concerns about weaknesses in the national framework for anti-money laundering and counter-terrorism financing. As part of the regulatory process, the National Treasury formed a multi-agency task force that incorporated input from the Central Bank of Kenya and the Capital Markets Authority to address these identified vulnerabilities.
Expanded Licensing Provisions and Definitions
Under the new proposals, eligibility for VASP licenses now includes limited liability partnerships, extending beyond the prior restriction to companies only. The regulator must respond to applications within 90 days, and licenses will be valid for 12 months from the date of issue, marking a shift from the previous system tied to a fixed annual expiration date.
All VASPs will be required to maintain a bank account in Kenya, reflecting a push for greater local oversight and financial transparency. The proposed rules also expand the definition of a virtual asset to cover any “digital representation of value,” including tokens that denote real-world assets on blockchain or similar technology, regardless of whether they rely on cryptographic security.
Issuers are broadly defined to encompass any individual or entity creating or distributing crypto assets to the public, applying to those engaged in initial token offerings as well as other distribution mechanisms. The regulations establish mandatory system audits every two years, to be conducted by certified IT auditors who will assess infrastructure, data security, transaction integrity, and preparedness for cyber threats.
Stablecoin issuers would face stringent reserve requirements. At least 30% of funds collected must be kept in segregated accounts at Kenyan commercial banks, while the remainder is limited to conservative investments such as cash, central bank reserves, or short-term government securities with maturities of 90 days or less. Repurchase agreements used for reserves are restricted to maturities of no more than seven days and must be backed by cash or central bank deposits.
These provisions around stablecoin backing are designed to ensure liquidity and local custody of reserves, echoing standards for high-quality liquid assets in financial regulation. Local journalist Julians Amboko highlighted that the rules mandate a focus on secure, domestically held assets to bolster confidence and stability in Kenya’s emerging virtual asset market.
The draft also imposes a 0.05% transaction fee for each party involved in token issuance activities on digital asset platforms. Additionally, a 0.5% levy is proposed on the total amount raised through initial virtual asset offerings, reflecting an effort to generate revenue from sector activity and ensure equitable contributions from market participants.
