Kenya has taken a major step towards regulating its thriving cryptocurrency market with the proposal of the Virtual Asset Service Providers Bill 2025. The bill, which is currently under consideration, aims to establish a comprehensive regulatory framework for cryptocurrencies, stablecoins, and digital asset services in the country.

The proposed legislation marks a significant shift in policy for Kenya, which has traditionally taken a cautious approach to cryptocurrencies. In 2015, the Central Bank of Kenya (CBK) warned the public to steer clear of cryptocurrencies, citing regulatory risks. However, with the growing popularity of digital assets in the country, the government has recognized the need for a more nuanced approach.

The Virtual Asset Service Providers Bill 2025 proposes to establish a dual regulatory framework, with the CBK and the Capital Markets Authority (CMA) sharing oversight responsibilities. The CBK will regulate wallet providers, stablecoin issuers, and crypto payment processors, while the CMA will license exchanges, tokenization platforms, investment advisors, brokers, and virtual asset managers.

The bill also introduces rules for initial coin offerings (ICOs), which have been plagued by fraudulent activities in the past. Companies issuing or selling digital tokens to raise money will be required to get approval from the CMA, disclose project details, and follow rules similar to those of initial public offerings (IPOs) in the stock market. This move is expected to protect investors and promote transparency in the ICO market.

Tokenization, which involves converting real-world assets like land or artwork into digital tokens on a blockchain, will also be regulated under the proposed framework. Tokenization platforms will be required to register with the CMA and disclose how assets are valued, stored, and transferred. This could open up access to fractional investments, but also raises concerns about verification and fraud.

Stablecoin issuers will face new licensing and reserve requirements, including regular audits and governance standards. This is aimed at minimizing systemic risks as dollar-pegged tokens gain popularity in cross-border remittances and payments.

Non-compliance with the proposed regulations could result in fines ranging from KES 3 million ($23,000) to KES 20 million ($155,000), jail terms, and permanent blacklisting from the sector.

The proposed regulatory framework is expected to boost investor confidence and attract blockchain-based innovation to Kenya. According to a 2023 report by Financial Sector Deeping (FSD) Africa, nearly half (47%) of Kenyan consumers own cryptocurrency, while stablecoin volumes across Africa topped $30 million over the 12 months ending July 2023.

However, the success of the legislation will depend on effective enforcement and regulators' ability to keep pace with the rapidly evolving crypto market. If implemented, the Virtual Asset Service Providers Bill 2025 could set a precedent for other African countries looking to regulate their cryptocurrency markets.

As Kenya takes a significant step towards regulating its cryptocurrency market, it remains to be seen how the proposed framework will be received by stakeholders and what impact it will have on the country's thriving digital asset ecosystem.