The government has established a multi-agency technical working group in a move to tighten the regulation of operations of cryptocurrencies in the country.
The technical committee, according to a brief to the National Assembly by National Treasury Cabinet Secretary Njuguna Ndung’u, includes the Central Bank of Kenya.
The team is mandated to develop a regulatory and monitoring framework for the usage of cryptocurrencies referred to as virtual assets (VAs) and those providing crypto assets and other virtual or digital assets services otherwise called virtual asset service providers (VASPs).
“The National Treasury has accordingly taken a policy decision to develop a regulatory and monitoring framework for VAs and VASPs through a multiagency technical working group to formulate the framework,” says Prof Ndung’u.
The cryptocurrency phenomenon is new in Kenya and the country does not have a regulatory framework to monitor its operations, exposing consumers to fraud and scam-related challenges.
“Due to the emergence of online marketing of virtual assets and online fraudulent investment options, CBK and other financial sector regulators issued notices warning the public against the use of unlicensed financial products and services,” says Prof Ndung’u.
The Financial Reporting Centre (FRC) of CBK conducted a money laundering/terrorism financing risk assessment on VAs and VASPs in September 2023 and recommended their regulation to address the laundering and financing of terrorism risks.
Kenya’s anti-money laundering and combating the financing of terrorism evaluation report of 2022 by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) recommended that Kenya take action on VAS and VASPs.
The Directorate of Criminal Investigations (DCI) revealed that at least Sh2.5 billion was irregularly injected into the economy in 2023 through M-Pesa withdrawals in payments to Kenyans who had their irises scanned by Worldcoin before its activities in the country were suspended.
This came as it dawned on Kenyans that the reality of the cryptocurrency phenomenon was here to stay and regulation was a key consideration.
Kenya is ranked second in Africa in cryptocurrency activities.
The National Computer Cybercrime Coordination Committee indicates that when Worldcoin operations were suspended in Kenya, at least 350,000 people had registered through iris scans.
The registration was done in exchange for a digital ID called World ID and free cryptocurrency as part of inducement plans “to create a new identity and financial network.”
In December 2015, the CBK issued a public notice warning the public against using virtual currencies such as Bitcoin.
The public notice was based on the growing interest and reports in the media on the use of bitcoins.
The CBK notice indicated that virtual assets are not legal tenders in Kenya and there was no protection for users in case the virtual currencies failed.
In 2015, the CBK cautioned banks against dealing in virtual currencies while in 2019 the regulator warned the public against trading with unlicensed online forex dealers and alter extended the caution to payment service providers.
