Kenya has launched its first comprehensive digital asset count and is seeking public feedback amid the International Monetary Fund’s (IMF) call for the country to update its outdated “crypto” regulatory framework.
The country’s National Treasury is behind the new bill, which aims to regulate the use of virtual assets (VA) and the virtual asset service providers (VASP) that offer related services. Cabinet Finance Minister John Mbadi told the media that the bill was necessitated by the rapid adoption of digital assets locally.
“Kenya’s financial sector is a beacon of innovation and growth in Africa. The Government of Kenya is committed to creating the necessary legal and regulatory framework to take advantage of the opportunities offered by VAs and VASPs while managing the risks that arise. stated.
Kenya is one of Africa’s largest digital asset markets and has been ranked highly globally for peer-to-peer (P2P) trading and overall adoption over the years. But the country, like many others in Africa, has yet to formally regulate the sector. Instead, it has focused on taxation: in the last fiscal year, the government collected 78 million dollars from the sector.
The IMF calls for clarity in the regulatory framework
The proposed bill came just two days after the IMF urged the East African nation to update its regulation on digital assets. In a technical assistance Report At the request of Kenya’s Capital Markets Authority (CMA), IMF staff advised the country to implement a clear regulatory framework for the sector or risk lagging behind its peers in Africa.
“The development of Kenya’s regulatory and supervisory framework for crypto-assets should be aligned with international frameworks and standards,” the report said. “In developing the regulatory framework, particular emphasis should be placed on the provision of regulatory clarity that enables the domestic crypto-asset sector to develop in a transparent manner and enables effective regulatory oversight.”
The IMF’s recommendations included conducting a comprehensive analysis of the current market, implementing “crypto” financial literacycoordinate the relevant authorities to monitor the sector, strengthen technical and human resources within the regulatory authorities and implement an adequate legal framework.
“Given the lack of specific regulations on cryptoassets in overarching laws – reflecting a lack of an overarching policy stance on cryptoassets – the CMA and CBK’s (Central Bank of Kenya) regulatory framework in the area of cryptoassets has so far remained limited and non-legally binding , formal instruments that would specifically or expressly cover crypto-assets have been issued by any of the institutions,” the IMF stated.
The IMF report further criticized the central bank’s approach, in which it issued a circular that acts as a “de facto ban on directly investing in digital assets or facilitating activities in digital asset markets.” The 2015 circular noted that digital assets do not qualify as legal tender under Kenyan law. This, the IMF says, cuts off the official regulated financial channels from facilitating digital asset transactions and, consequently, deny regulators access to the industry’s ins and outs.
“This is problematic as it further obscures the already non-transparent situation related to the crypto asset market in Kenya due to the fact that the regulated part of the financial sector cannot officially engage in (and thus be used to report on) the crypto markets.”
The Washington-based organization says Kenya can choose to draft a comprehensive new legal framework, make targeted legislative changes followed by legislative reforms, issue regulations without any legislative changes or use exemptions for certain service providers.
In the footsteps of M-Pesa
It is not clear whether the proposed regulatory framework was informed by the IMF. It could also have been affected by the Blockchain Association of Kenya (BAK), which was prosecuted help the Riksdag draft new laws on digital assets by the end of 2023; BAK has not issued a statement on the new proposals.
However, the framework, according to the Ministry of Finance, is inspired by a desire to lead Africa in financial technology with digital assets, as the East African nation did with mobile money. The world-renowned M-Pesa, which has been around for almost two decades, has revolutionized mobile money across Africa and beyond. In Kenya, the service has 34 million clients, almost 100% of the adult population.
“From the pioneering mobile money revolution that started with the launch of mobile-based financial services in 2007 to the robust financial system, the country has consistently pushed the boundaries of financial inclusion through technological advancements,” Mbadi said.
The finance minister acknowledged that digital assets have a role to play in Kenya’s digital payments sector. According to the IMF, local businesses have increasingly used digital assets for cross-border payments because the usual options are still expensive and slow.
But Kenya needs to mitigate the risks of digital assets, Mbadi noted. This includes money laundering, tax evasion, fraud, fraud, terrorist financing and other forms of cybercrime.
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