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The end of a key consultation period means the modernisation of crypto and digital assets regulation continues to advance, but strict rules could inadvertently disadvantage local start-ups and lead to capital flight and consolidation.
The National Treasury’s consultation requested input from industry stakeholders on the proposed legal framework for licensing and regulating virtual asset service providers (VASPs) operating in and from Kenya.
The proposed regulations were devised following the implementation of the Virtual Asset Service Providers (VASP) Act, which came into force in November 2025 and formally recognised virtual assets as digital representations of value for trading or investing.
The treasury, the Central Bank of Kenya (CBK), Capital Markets Authority (CMA) and the Retirement Benefits Authority collaborated to develop the legislation “to bring order, security, and transparency to a sector that has long operated in a legal grey area.”
Public consultation
To operationalise the act, the authorities created the VASP Regulations and conducted a Regulatory Impact Statement (RIS) process, including the public consultation.
When it issued the RIS in March 2026, the National Treasury recommended approving the regulations to help make the act operational.
According to officials, the core objective of the process is to create a “robust legal framework” for the virtual assets sector. This includes the licensing of vetted entities to operate in Kenya, safeguarding consumers against fraud and high-stakes speculation and setting down clear anti money-laundering and counter-terrorism financing (AML/CTF) standards.
The objectives also cover consumer and investor protection through disclosure requirements, rules on safeguarding client assets and robust complaint procedures.
The goal is to promote financial stability through clear prudential standards that include capital and reserve requirements for VASPs.
In addition, the regulations establish a legal structure for providers, consumers and regulators to foster innovation and attract investment.
The legislation has also been critical for Kenya to prove it can monitor digital flows to reassure international investors and regulators after it was placed on the Financial Action Task Force (FATF) grey list because of gaps in its AML/CTF enforcement.
The consultation was an opportunity for stakeholders to highlight what they consider overly harsh proposals that could negatively affect local entities’ ability to operate on a level playing field.
Nairobi-based law firm Bowmans noted that following the end of the consultation period, the multiple agencies involved in creating the draft regulations will continue to amend them, in consultation with the CBK and CMA.
They will be finalised by the National Treasury and Cabinet Secretary, although no timeline has been set for when the regulations will be fully implemented.
Innovation and public interest
Although the final terms of the legislation remain under consideration, the conditions being consulted on have caused some disquiet. In an industry with thin operating margins, the proposal for operators’ fees to be based on turnover has led to concern.
Another challenge for stablecoin issuers is having a minimal paid-up capital of up to KES500m ($3.8m), which critics warn effectively bars local start-ups in favour of wealthier foreigners.
At the same time, Kenya wants to spread the ownership of individual companies and has suggested that no individual can control more than 33.3 percent of an entity. Opponents counter that this limit is contrary to the dynamics of the sector in which founders often wish to have sole or very limited ownership of a venture, particularly in the early stages.
An unintended consequence of this rule could be that local start-ups may opt to incorporate in other jurisdictions and just “operate” in Kenya via a subsidiary, effectively triggering capital flight before the sector even matures.
In a likely reaction to Kenya's inclusion on the FATF list, the country’s regulators want real-time access to data and a mandatory seven-year records retention requirement. Again, this level of compliance may be seen as excessive, particularly for smaller players, given the financial burden it will impose.
The requirements go beyond FATF’s own recommendations (under Recommendation 11, financial institutions must maintain necessary records for at least five years), and suggest that the regulators are more concerned about international optics than local market growth.
The Virtual Assets Association of Kenya (VAAK) has a vision to “position Kenya as Africa's most trusted hub for virtual asset innovation, compliance excellence, and responsible growth”. It was launched in December 2025 with the aim of coordinating the Kenyan sector’s responses to nascent regulations as well as building long-term trust in the country’s digital assets ecosystem.
The association claims to have more than 50 VASP sector members in its role as a “coordination mechanism” rather than lobbyist. It has been looking at the implications of the bill on its members and has been advocating for a tiered licensing regime so that small startups face lower fees and capital requirements.
VAAK anticipates the implications of the legislation around annual licence renewals could lead to consolidation within the local industry.
Although the interplay between Kenya’s government and the country’s virtual assets sector could be seen mainly as a local issue, blockchain-focused lawyer Marcin Bober has noted that the country is one of the most active cryptocurrency markets by transaction volume.
Chainalysis research shows that Kenyans received around $19bn in cryptocurrency inflows in the year to June 2025, with 6m regular users.
Capital demands
Bober echoes VAAK’s view that the minimum paid-up capital sum of $3.8m, with further costs for insurance and compliance costs may push the smaller operators out of the market.
By comparison, Nigeria’s minimum capital requirements for stablecoin issuers are set at NGN1bn to NGN2bn – around $700,000 to $1.4m.
The knock-on effect will be to push some users to offshore or unregulated platforms rather than pay fees to mitigate their costs of doing business.
As an example of its commitment to the principle of accessible market participation, VAAK has a four-tier membership system:
- KES100,000 ($768) for local start-ups.
- KES250,000 ($1,920) for mid-sized members.
- KES500,000 ($3,800) for regional organisations.
- KES1m ($7,684) for “global” players.
The disparity between these fees and the capital requirements in the proposed regulation suggests that the treasury may not be as connected to the grassroots industry as it should be.
Bowmans believes the key legal and commercial requirements are centred on the licence application, fit and proper requirements, capital and shareholding and liquidity requirements, along with the frameworks licensees must put in place to meet consumer protection requirements.
Licence applications must include clear evidence of paid-up capital and adequate technology processes. The capital requirements vary depending on the VASP category the prospective licensee is applying for and the money cannot be tied to another venture or financial obligation.
Consumer protection measures include advising the regulator of any cybersecurity risks incidents, having customer care systems in place and adhering to advertising regulations.
Businesses already operating in or planning to enter Kenya’s virtual asset sector should prepare by strengthening their internal governance, compliance frameworks and capital readiness requirements.
However, the risk is that Kenya is effectively legislating for an oligopoly where local start-ups are forced out and only the largest international players can survive.
We could see a large, vibrant but underground ecosystem of local providers and users moving to offshore platforms to avoid the cost of compliance.
The strictness of the National Treasury’s approach could thus undermine the transparency it was designed to create, failing to help the country get off the FATF grey list. Real-time data access and seven-year record retention will provide security only if the transactions happen on regulated domestic platforms.
If the final framework does not reflect industry feedback, Kenya may find it has regulated its local industry into extinction.
