How Kenya Aims to Tackle Crypto Fraud with New Policies

Ericson Mangoli By Ericson Mangoli
4 Min Read
How Kenya Aims to Tackle Crypto Fraud with New Policies

In a progressive move towards embracing digital finance, the Kenya National Treasury has introduced a regulatory framework aimed at overseeing cryptocurrencies and digital tokens within its borders.

This initiative seeks to combat various challenges associated with the rise of crypto assets, including tax evasion, fraud, and cybercrime.

The Treasury recently released a Draft National Policy on Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs), inviting public input to finalize the document.

This policy is poised to play a crucial role in shaping the regulatory landscape for digital assets in Kenya.

Shift from Regulation to Integration

Initially contemplating a ban on virtual assets, Kenya is now pivoting towards integrating cryptocurrencies into its formal economy under clearly defined regulations.

The draft policy, as set forth by the Treasury, reflects a broader understanding, drawing lessons from international experiences to create a flexible framework that promotes both domestic and international collaboration.

“This policy guides the establishment of a sound legal and regulatory framework providing the fundamental foundation of a fair, competitive, and stable market for VAs and VASPs with the aim of fostering innovation, enhancing financial literacy, and ensuring sound risk management,” states the draft document.

Positioning Kenya in the Global Digital Finance Ecosystem

The overarching objective of the proposed policy is to position Kenya as a significant player in the global digital finance landscape.

The Treasury defines a virtual asset as a “digital representation of value” that can be exchanged, transferred, or utilized for payments and investments.

The surge in public interest towards alternative investments, combined with the efficiency of cross-border transactions, has fueled the increasing popularity of cryptocurrencies in Kenya.

Nevertheless, these advantages come with a set of concerns, notably the risks associated with unregulated cryptocurrency use, such as money laundering, terrorism financing, tax evasion, fraud, and cybercrime.

“With these risks in mind, there’s an urgent need for a comprehensive legal and regulatory framework to govern VAs and VASPs, ensuring the safety and integrity of Kenya’s financial system,” highlighted Treasury Cabinet Secretary John Mbadi.

Support from International Bodies

In alignment with this new direction, the International Monetary Fund (IMF) has expressed its support for Kenya’s regulatory efforts concerning crypto activities. Following a request for technical assistance by the Capital Markets Authority (CMA), the IMF is set to aid in drafting appropriate regulations. This includes assessing risks to the country’s financial stability and consumer protections.

“Once this assessment is complete, the IMF can provide technical assistance to help Kenyan authorities address risks to financial stability, markets, and consumers,” stated the IMF in a recent report.

The proposed framework incorporates recommendations from the Financial Action Task Force, with implementation scheduled for April 2025.

As cryptocurrencies become increasingly integrated into payments, remittances, and investments, Kenya has witnessed a remarkable rise in their adoption. According to a report by Chainalysis, Kenya holds the 21st position globally in terms of crypto adoption and ranks third in peer-to-peer (P2P) exchange trade volumes.

Moreover, data from a 2020 CMA report indicates that Kenya accounts for over 12% of Africa’s P2P bitcoin trades, trailing only Nigeria. A 2017 research report by Citi suggested that Kenya’s Bitcoin holdings constituted approximately 2.3% of its GDP in 2016.

The enactment of the proposed policy presents a vibrant legal framework for managing virtual assets while addressing associated risks, heralding a new chapter in Kenya’s digital finance landscape. This regulatory development not only enhances the country’s financial integrity but also fosters an environment conducive to innovation and economic growth.

 

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