- New regulations for crypto firms in Kenya will force players give evidence of sufficient working capital to continue business.
- Crypto firms will required to maintain core capital of not less than 12% of the total fiat value of the virtual assets held or proposed to be held in the custody of the platform.
- The Virtual Asset Service Provider (VASP) Bill also proposes that businesses dealing in digital assets in the country be allowed to operate as commercial entities.
Players in the digital assets and crypto currency space are now pushing for new regulations for crypto firms that will govern how new players join Kenyan market.
The digital asset industry lobby group, the Blockchain Association of Kenya (BAK), is among others, proposing the formation of a new regulatory sandbox that will test and regulate companies in the industry before their licensing.
Additionally, the Virtual Asset Service Provider (VASP) Bill, which has been submitted to the National Assembly, the BAK is proposing that businesses dealing in digital assets in the country be allowed to operate as commercial entities.
Mr Michael Kimani, who is the Chairman of BAK, says that the Bill contains a licensing framework on how crypto firms will register in Kenya, and sandbox that will enable business come through before approval.
Inside the new regulations for Crypto firms
“Virtual currency businesses have been struggling to get into the CMA sand box because of the lack of a framework. What this draft Bill is proposing is a joint regulatory sandbox that will involve CBK, CMA and all other regulators where they can all take part jointly in approving some of these business coming into the sandbox,” explains Kimani.
The BAK was tasked to draft a framework to govern the cryptocurrency industry because the lack of a framework has led to the mushrooming of dubious cryptocurrency scams that have defrauded Kenyans of millions.
The VASP Bill was set to be handed over to the National Assembly Committee on Finance on February 14th, 2023.
However, due to growing interest from new stakeholders such as government agencies and other stakeholders affected by elements of the Bill, the association in consultation with its members decided to extend the feedback period.
The Bill, he said, addresses the industry, consumer and regulator concerns by proposing a licensing framework, consumer protection framework, Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) and a regulatory sandbox.
Among the proposals the firms will be required to give an evidence of sufficient working capital to continue business for at least 12 months based on realistic forecasts for the business in different market conditions both positive and negative
They will also be required to maintain core capital of not less than 12 per cent of total fiat value of the virtual assets held or proposed to be held in the custody of the platform.
Read also: Riding the Bitcoin Wave: Strategies for Success in Crypto
The Capital Markets (Amendment) Bill, 2023
An earlier proposed law, the Capital Markets (Amendment) Bill, 2023 sought to introduce taxation of the crypto exchanges and digital wallets and imposes transaction taxes akin to excise duty charged on bank transactions.
Banks deduct 20 per cent excise duty on all commissions and fees charged on transactions. Kenyans will pay the Kenya Revenue Authority (KRA) capital gains for the increased market value of the crypto when they sell or use the digital currencies in a transaction if the Bill is approved.
The Regulation of digital assets has been a contentious topic in the past few years with developed countries such as the US, Hong Kong and Singapore setting the tone for reining in an industry perceived as wild west by mainstream financial regulators.
In Africa, countries like Nigeria and South Africa have already put in place regulations to manage the industry which is seen as enabling capital flight and providing avenues for criminal activity such as money laundering.
The draft VASP Bill will put Kenya on the map as a digital asset hub. If passed, the bill will see an inflow of tax revenues into the coffers of Kenya’s National Treasury.
