MasiboLaw

By Meshack Masibo and Bakhita Murithi

It is estimated that more than 4 million Kenyans hold a virtual asset in the form of at least one type of cryptocurrency.  However,  the growth of Kenya’s digital asset market has been plagued with poor public perception, scams, fraud and the lack of investor protection which has made regulation a pressing need.

Reeling under pressure from the IMF, the Kenyan government has introduced the Virtual Asset Service Providers Bill 2025 which seeks to regulate virtual asset products.  It is not unique to Kenya, which is following in the footsteps of countries like Singapore. 

The Virtual Asset Service Providers Bill 2025 defines a virtual asset as a digital representation of value that can be digitally traded or transferred and has commercial viability. This means that the Bill regulates assets that can be transferred to others in exchange for payment or used to pay bills and buy certain items.

The Bill further states that an entity is a virtual asset service provider if that entity is a local company incorporated under the Companies Act. If it is a foreign company then that company must be issued with a certificate of compliance under the Companies Act. 

Below are different types of Virtual Asset Service Providers and their functions: 

a. Virtual Asset Wallet Provider

Providing storage for virtual assets on behalf of others and facilitating exchanges or transfers between one or more virtual assets.

b. Virtual Asset Exchange

Providing a digital online platform facilitating virtual asset transfers and exchanges.

c. Virtual Asset Payment Processor

Arranging transactions involving virtual assets and fiat currency, or between virtual assets.

d. Virtual Asset Broker

Facilitate the exchange between one or more forms of virtual assets through a virtual asset exchange and virtual asset wallet providers for and on behalf of clients, which may include retail, institutional investors, or funds.

e. Initial Virtual Asset Offering Provider

Issuing and selling virtual assets to the public. May involve participating in and providing financial services relating to the initial virtual asset offering.

KEY PROVISIONS OF THE BILL

The Bill outlines several critical components:

i. Licensing requirement

The Bill makes it mandatory for companies dealing with virtual assets such as cryptocurrencies and tokens to acquire a Virtual Asset Service Providers License. The Licensing process involves stringent checks to ensure compliance with Anti-Money Laundering (AML) regulations. This measure seeks to ensure that only qualified and compliant entities operate within the sector. For the avoidance of doubt, a natural person is not allowed to carry on the business of virtual asset provider services. A person intending to carry on the business of virtual asset services shall apply for a license from the relevant regulatory authority. The applicants will provide details about their operations, business model and compliance mechanisms.

ii. Regulatory Authorities.

The Bill designates specific bodies responsible for overseeing Virtual Assets Service Providers, including the Capital Markets Authority and the Central Bank of Kenya. These Authorities are tasked with licensing, supervision and enforcement to maintain sector integrity. The Virtual Assets Service Providers are required to implement robust Anti-Money Laundering (AML) and Counter Terrorism Financing (CFT) measures. The regulatory authorities are empowered to enforce compliance, conduct inspections and impose penalties for violations.

iii. Consumer Protection.

To protect users, the Bill mandates that Virtual Assets Service Providers disclose risks and terms of service. It also requires the implementation of tight security measures to protect the client’s digital assets from fraud and cyber-attacks.

iv. Penalties for Non-compliance.

Violating operational requirements or failing to meet reporting obligations could result in heavy penalties or license suspension for licensed companies.

In conclusion, the Virtual Asset Service Providers Bill 2025 is a landmark piece of legislation that is set to shape the future of cryptocurrency and digital assets in Kenya. By regulating the these service providers in Kenya, the government is warming up to cryptocurrencies, while ensuring that investors are protected and businesses are regulated in a way that keeps consumers safe. 

The writer is a lawyer who specialises in offering legal services to technology companies, you can contact him through info@masibolaw.co.ke