Kenya's National Treasury has taken a significant step towards regulating the country's cryptocurrency market by opening a public consultation on a new bill and policy aimed at overseeing virtual asset companies, including crypto exchanges. This move comes in response to warnings from the International Monetary Fund (IMF) that Kenya is falling behind in regulating the industry, citing concerns about risks related to money laundering and terrorism financing.

The proposed bill and policy provide a framework for the oversight and development of the virtual assets ecosystem, according to the National Treasury. This could solve a legal grey area that has prevented banks from engaging with cryptocurrencies in the country, and presents an opportunity for crypto exchanges like Binance, which operate without formal regulatory approval.

Kenya's financial sector is currently regulated by the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA). While the CMA has softened its stance on virtual assets, the CBK has maintained a firm position, repeatedly warning banks against engagement with virtual currencies. The lack of regulation has led to a situation where crypto exchanges are unable to obtain operating licenses, leaving users exposed to potential fraud and financial losses.

The IMF's report highlights the absence of specific laws to govern cryptocurrencies and the failure of regulators to issue formal, binding policies on digital assets. This lack of regulation has also aided bad actors, with no clear oversight on how to manage or monitor the growing digital assets market. According to Chainalysis, 4 million Kenyans hold crypto assets, but without regulation, it is difficult to establish the true value of digital assets, which could run into millions of dollars.

The IMF notes that there is currently a significant degree of uncertainty and a lack of consensus among authorities regarding the actual size, structure, and risks of the Kenyan crypto assets market. With public participation about to start, all eyes will be on how the government navigates the digital assets market and addresses the concerns raised by the IMF.

The move towards regulation is a significant step forward for Kenya's cryptocurrency market, which has been operating in a legal grey area for some time. As the government begins to navigate the complexities of regulating virtual assets, it will be important to strike a balance between protecting users and allowing innovation to flourish. The outcome of this public consultation will be closely watched, as it has the potential to shape the future of Kenya's cryptocurrency market.