The financial sector regulators have softened their stance on cryptocurrency and recommended the formation of a technical committee that will create laws to regulate digital assets and businesses in the sector.
The five regulators including the Central Bank of Kenya (CBK), Capital Markets Authority (CMA), Insurance Regulatory Authority (IRA), Retirement Benefits Authority (RBA) and the Sacco Societies Regulatory Authority (Sassra) have recommended the formation of a committee to formulate the regulations.
In a statement on Friday, the CBK said the Joint Financial Sector Regulators Forum (JFSRF) has agreed to consider the National Treasury and Economic Planning recommendation to form a working group that will advise the Treasury CS on crypto regulations.
“To consider the recommendation of the National Treasury and Economic Planning for the formation of a Technical Working Group of concerned regulators to make recommendations to the Cabinet Secretary on the establishment of a comprehensive oversight framework on crypto assets activities and players in Kenya,” read the statement.
“These recommendations will be subsequent to wide consultations and deliberations across the financial sector and other relevant stakeholders.”
An estimated four million Kenyans, mainly young and small traders, hold the digital assets. Millions in recent years have flocked to cryptocurrencies in the hope of quick returns, despite regulators like the Central Bank of Kenya (CBK) warnings that emerging assets can be high risk.
CBK governor Patrick Njoroge has long maintained that digital currencies pose risks to financial stability, arguing that they could solve problems such as bringing the poor into the financial system or cutting transaction costs.
For its part, CMA warned investors against taking part in initial coin offerings (ICOs) that emerged in 2018, saying they have no regulatory oversight and therefore in case of losses investors would have no recourse.
The capital markets regulator also locked out crypto firms from its fintech incubating platform launched in 2019, citing high risks associated with Internet-based digital currencies.
CBK in February invited the public for views on the potential introduction of a digital currency to offer some benefits especially in reducing cross-border payment costs.
But crypto assets have proved popular in Kenya despite central bank warnings about their risks.
Blockchain analytics firm Chainalysis, which ranks countries on crypto adoption, revealed that Kenya is among top dealers in peer-to-peer cryptocurrency platforms, which allows traders to transact directly with one another without the need for a centralised third party to facilitate the transactions.
The push to regulate the sector comes amid a market downturn that has seen investors lose billions of dollars in investment. It also comes when the crypto industry is in turmoil following the collapse of the second-largest exchange FTX.
The $32 billion collapsed crypto-empire has been accused of mismanagement investors' funds with some being used by executives of the disgraced firm to fund lavish lifestyles in the Bahamas.
The crypto market, known for its wild price swings, has shed more than half its value since November last year as investors pulled out money from riskier assets amid worries over soaring inflation and rising interest rates.
