Briefing
Kenya’s Parliament has advanced the Virtual Asset Service Providers (VASP) Bill, 2025, establishing a comprehensive regulatory framework for digital assets, alongside amendments in the Finance Act, 2025. This legislation mandates licensing for all virtual asset service providers operating within or from Kenya, imposing rigorous compliance obligations encompassing anti-money laundering (AML), countering the financing of terrorism (CFT), consumer protection, and cybersecurity standards. The Finance Act, 2025, notably repealed the unworkable Digital Asset Tax (DAT), replacing it with a 10% excise duty on VASP service fees, signifying a pragmatic shift towards a more viable tax regime. This integrated approach aims to formalize the digital asset sector, fostering market integrity and positioning Kenya as a regional innovation hub.
Context
Prior to this legislative action, Kenya’s virtual asset sector operated within a significant regulatory grey area, characterized by a lack of explicit legal frameworks and inconsistent application of existing financial mandates. While the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) had issued public advisories and guidelines, their rulemaking authority over virtual assets was limited, leading to considerable legal uncertainty for over 20 firms operating in the space. This ambiguity created challenges in consumer protection, risk mitigation, and the effective enforcement of financial crime laws, as evidenced by past platform collapses resulting in investor losses.
Analysis
The VASP Bill, 2025, fundamentally alters the operational landscape for digital asset businesses by introducing a mandatory licensing regime overseen by the CBK and CMA. Regulated entities must now integrate robust internal policies for customer due diligence (CDD), suspicious transaction reporting, and data protection, directly impacting their compliance frameworks and risk management protocols. This legislative clarity requires a systemic update to business operations, ensuring adherence to new minimum capital requirements and operational standards. The shift from a transaction-based Digital Asset Tax to an excise duty on VASP service fees further necessitates a re-evaluation of financial modeling and pricing strategies for service providers.
Parameters
- Legislative Instruments ∞ Virtual Asset Service Providers (VASP) Bill, 2025; Finance Act, 2025
- Jurisdiction ∞ Kenya
- Primary Regulatory Authorities ∞ Central Bank of Kenya (CBK), Capital Markets Authority (CMA)
- Entities Subject to Regulation ∞ Virtual Asset Service Providers (VASPs)
- Core Compliance Requirements ∞ Licensing, AML/CFT, CDD, Consumer Protection, Cybersecurity
- Taxation Reform ∞ 10% excise duty on VASP service fees (replacing 3% Digital Asset Tax)
Outlook
The VASP Bill is currently undergoing a public participation phase, with final enactment expected by the end of July 2025. This legislative action sets a significant precedent for digital asset regulation across Africa, potentially influencing other jurisdictions seeking to formalize their crypto economies. The emphasis on licensing passporting within the VASP Bill could streamline multi-jurisdictional operations for compliant entities. Looking forward, the industry will monitor the implementation of these standards, particularly how the CBK and CMA exercise their new oversight powers and whether the framework successfully balances innovation with robust risk mitigation.