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<blockquote><div class="quotetitle">Quote from <a class="profile-link highlight-moderator" href="https://lawguide.co.ke/understanding-law/legal-forum/profile/lawyer/">Lawyer</a> on April 28, 2025, 9:18 am</div><div id="pl-5103"  class="panel-layout" ><div id="pg-5103-0"  class="panel-grid panel-no-style" ><div id="pgc-5103-0-0"  class="panel-grid-cell"  data-weight="1" ><div id="panel-5103-0-0-0" class="so-panel widget widget_sow-editor panel-first-child panel-last-child" data-index="0" data-style="{&quot;background_image_attachment&quot;:false,&quot;background_display&quot;:&quot;tile&quot;,&quot;background_image_size&quot;:&quot;full&quot;,&quot;background_image_opacity&quot;:&quot;100&quot;,&quot;border_thickness&quot;:&quot;1px&quot;}" ><div
			
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	<p dir="ltr" data-pm-slice="1 1 []">The Virtual Asset Service Providers (VASPs) Bill, 2025, gazetted on March 17, 2025, in Kenya Gazette Supplement No. 53, represents a pivotal step in regulating virtual assets and their service providers in Kenya. This commentary examines the key updates introduced in the revised Bill compared to the 2024 draft, analyzing their implications for businesses, regulatory authorities, and consumers in Kenya’s burgeoning virtual asset market. The Bill’s provisions aim to enhance transparency, curb illicit activities, and foster a robust digital financial ecosystem while balancing regulatory oversight with operational flexibility.</p>
<h3 dir="ltr"><span style="text-decoration: underline;"><strong>Expanded Definitions and Prohibited Services</strong></span></h3>
<p dir="ltr">The inclusion of new definitions, such as “anonymity enhancing services,” “mixer or tumbler services,” “custodial wallet,” and “stablecoins,” reflects a deliberate effort to address emerging risks in the virtual asset space. The prohibition of anonymity-enhancing and mixer or tumbler services, which obscure the origin or destination of virtual asset transactions, underscores Kenya’s commitment to combating money laundering and the financing of terrorism. These services, often exploited to conceal proceeds of crime, are now explicitly outlawed, aligning Kenya’s framework with international anti-money laundering (AML) and counter-terrorism financing (CFT) standards, such as those set by the Financial Action Task Force (FATF).</p>
<p dir="ltr">By defining and regulating stablecoins under the Central Bank of Kenya (CBK) and initial coin offerings (ICOs) under the Capital Markets Authority (CMA), the Bill establishes a clear division of regulatory responsibilities. This delineation enhances regulatory clarity, ensuring that entities operating in these domains are subject to tailored oversight. The introduction of provisions for token issuance platforms further signals Kenya’s intent to support innovation in real asset tokenization while maintaining investor protections. Businesses offering custodial wallets or stablecoin-related services must now align with CBK regulations, while those involved in ICOs or token platforms will face CMA scrutiny. The prohibition of anonymity-enhancing services may limit certain blockchain-based offerings but will bolster Kenya’s reputation as a jurisdiction committed to financial transparency.</p>
<h3 dir="ltr"><span style="text-decoration: underline;"><strong>Stricter Licensing and Governance Requirements</strong></span></h3>
<p dir="ltr">The shift from requiring a registered address to mandating a physical office in Kenya is a significant change. This requirement facilitates on-site inspections, enabling regulators to verify compliance with AML/CFT obligations, review operational systems, and ensure a tangible business presence. While this may increase operational costs for VASPs, it strengthens regulatory enforcement and deters shell companies from entering the market.</p>
<p dir="ltr">The increase in the minimum board composition from two to three directors, all of whom must be natural persons, enhances corporate governance standards. Allowing directors to serve on up to two VASP boards, as opposed to the previous restriction of one, strikes a pragmatic balance. In a nascent industry like virtual assets, where experienced leadership is scarce, this flexibility supports growth while maintaining oversight. VASPs must invest in establishing physical offices and robust governance structures, which could pose challenges for smaller startups. However, the relaxed board membership rules may encourage experienced professionals to contribute to multiple entities, fostering sector-wide expertise.</p>
<h3 dir="ltr"><span style="text-decoration: underline;"><strong>Enhanced Compliance and Consumer Protection Measures</strong></span></h3>
<p dir="ltr">The Bill introduces stringent compliance requirements to protect consumers and maintain market integrity. The provision allowing regulators to suspend, vary, or revoke licenses for fraudulent or misleading marketing practices is a critical safeguard. By targeting deceptive advertising, this measure protects investors from false promises of returns or understated risks, fostering trust in Kenya’s digital financial ecosystem.</p>
<p dir="ltr">The increased penalties for non-compliance—Kshs. 3 million for individuals and Kshs. 10 million for companies—signal a tougher stance on regulatory violations. Additionally, the mandate to comply with the Data Protection Act, 2019, reinforces Kenya’s commitment to safeguarding personal data, a critical concern in digital finance where breaches can erode consumer confidence.</p>
<p dir="ltr">The requirement for CEOs to promptly report material changes, such as shifts in banking arrangements or ownership, enhances regulatory oversight. This proactive reporting ensures regulators can assess potential risks to consumers arising from operational or structural changes. Furthermore, the obligation to segregate client assets from proprietary or non-client assets is a cornerstone of consumer protection. By requiring distinct accounts or wallets, the Bill mitigates risks associated with VASP insolvency, fraud, or operational failures, ensuring clients can recover their assets. VASPs must implement robust compliance frameworks, including data protection measures and asset segregation protocols. The heightened penalties and reporting obligations may deter non-compliant operators but could increase operational burdens for legitimate businesses. Consumers, however, benefit from enhanced protections, which may boost confidence in virtual asset services.</p>
<h3 dir="ltr"><span style="text-decoration: underline;"><strong>Transitional Provisions and Implementation Timeline</strong></span></h3>
<p dir="ltr">The extension of the compliance timeline for existing VASPs from six to twelve months provides a more reasonable period for businesses to align with the new requirements. This transitional leniency acknowledges the complexity of implementing physical offices, governance changes, and compliance systems, particularly for smaller operators. The extended timeline offers breathing room for VASPs to adapt, potentially reducing market disruptions. However, businesses must act swiftly to meet the Bill’s stringent standards before the deadline.</p>
<h3 dir="ltr"><span style="text-decoration: underline;"><strong>Broader Implications and Future Considerations</strong></span></h3>
<p dir="ltr">The VASPs Bill, 2025, positions Kenya as a forward-thinking jurisdiction in the regulation of virtual assets. By aligning with global AML/CFT standards and introducing consumer-centric measures, the Bill enhances Kenya’s attractiveness as a hub for legitimate virtual asset businesses. However, the increased regulatory burden—particularly the physical office requirement and heightened penalties—may challenge smaller players, potentially favoring larger, well-funded entities.</p>
<p dir="ltr">As the Bill progresses through the National Assembly, further amendments may refine its provisions. Stakeholders should closely monitor these developments, as changes could impact compliance strategies. Additionally, the interplay between CBK and CMA regulations will be critical in ensuring a cohesive regulatory framework that supports innovation without compromising oversight.</p>
<h3 dir="ltr"><span style="text-decoration: underline;"><strong>Conclusion</strong></span></h3>
<p dir="ltr">The Virtual Asset Service Providers Bill, 2025, marks a significant milestone in Kenya’s regulation of virtual assets. Its comprehensive updates—ranging from expanded definitions and prohibited services to stricter licensing and compliance requirements—reflect a balanced approach to fostering innovation, protecting consumers, and curbing illicit activities. While the Bill imposes new challenges for VASPs, it lays the foundation for a transparent and trustworthy virtual asset market in Kenya, positioning the country as a leader in digital finance regulation in the region.</p>
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