Kenya is planning to impose new laws to govern cryptocurrency trading, motivated by concerns that the unregulated nature of digital currencies could potentially facilitate money laundering and create avenues for terrorism financing. A working group is currently formulating a policy document that will lay the groundwork for the legal framework intended to regulate digital asset providers. Once complete, the proposal will go before the Cabinet for approval.
This initiative aligns with Kenya’s strategy to bolster its financial system ahead of an evaluation by the Financial Action Task Force (FATF), an international agency that focuses on preventing money laundering and terrorism financing. Kenya aims to avoid landing on the FATF’s “grey list”, which includes countries under scrutiny for their potential for financial crimes and terrorism financing.
FATF’s grey list currently includes countries like South Sudan, Tanzania, Uganda, and Sudan. Furthermore, the Eastern and Southern Africa Anti-Money Laundering Group, an associate member of FATF, has an active role in fighting such unlawful activities in the region.
Saitoti Maika, the Director General of the Financial Reporting Centre (FRC), Kenya’s primary agency against money laundering and terrorism financing, proposed that the country might need to create a distinct regulatory body for virtual assets.
Maika emphasised the importance of proper regulation, stating, “We can’t bury our heads in the sand. The more we fail to regulate, the more we risk being punished.” The establishment of the FRC was a direct result of FATF’s requirement for each country to possess a financial intelligence agency.
Saitoti Maika, the Director General of the Financial Reporting Centre (FRC), expressed concerns over the current state of cryptocurrency trading in Kenya. He stated, “The concern has been that Kenyans are trading, and yet we don’t know, as a country, to what extent the proceeds that flow in this space are likely to get into the financial system. We are being reminded that as we become more sophisticated as a country, we have to deal with the risk.”
The FATF had identified deficiencies in Kenya’s anti-money laundering, counter-terrorist, and proliferation financing (AML/CFT) systems after an assessment conducted by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) in 2022. The country was then given a 12-month timeline to address these issues, with October 2023 marking this deadline.
In light of this, the FATF will evaluate Kenya’s progress in a meeting this week. If any shortcomings are detected, the country could potentially be placed on the FATF’s grey list.
The use of cryptocurrencies is rapidly growing, with adoption rates steadily increasing around the world. Currently, Nigeria leads the African continent in terms of cryptocurrency transaction volume. However, the use of cryptocurrencies in Kenya has seen a notable rise, placing the country in the same tier as South Africa and Ghana in terms of adoption.
Despite the increasing use of cryptocurrencies, Kenya has yet to implement a regulatory framework to govern the operations of its burgeoning crypto market.
In October 2023, the Kenyan parliament assigned the task of drafting the initial version of the Virtual Asset Service Providers (VASP) bill, also referred to as the Crypto Bill, to the Blockchain Association of Kenya (BAK).
BAK successfully drafted the country’s first-ever VASP bill in February 2024, following which it was made publicly available for comment and feedback.
