The Virtual Asset Service Providers Bill, 2025

Introduction 

In December 2015, the Central Bank of Kenya (CBK) issued a public notice cautioning the public about virtual currencies such as Bitcoin. The caution was mainly due to the decentralized nature of virtual currencies which operate without regulatory oversight, and their associated risks which include: the pseudonymous nature of some virtual assets making them vulnerable to misuse by criminals for activities like money laundering and financing terrorism. Secondly, virtual currencies were often traded on unregulated platforms globally, meaning customers lacked legal recourse in case of platform failures. Finally, most virtual assets such as cryptocurrency lack any underlying backing, hence their value is speculative, leading to high volatility and potential losses for users. Further, CBK informed the public that virtual assets were not legal tender in Kenya and therefore no protection existed in the event that the virtual currency platforms failed. CBK’s Banking Circular No. 14 of 2015 was issued to all banks, mortgage finance companies and Microfinance banks, cautioning them against dealing in virtual currencies or transacting with entities that are engaged in virtual currencies.  

Fast forward to 2025, this position has evolved, with regulatory bodies adopting a more open approach towards virtual assets. The regulatory authorities have decided to embrace the use of virtual assets in Kenya by aiming to strike a balance between encouraging technological innovation and implementing strong regulatory frameworks to ensure financial stability, protect consumers, and uphold international standards. In line with this progressive spirit, the government has drafted the National Policy on Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs) and the Virtual Asset Service Providers Bill, 2025. This article explores the key provisions of the Bill.  

Key Definitions and Scope 

The Bill defines a Virtual Asset as a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes, and does not include digital representations of fiat currencies (government issued money), e-money, securities (like stocks and bonds) and other traditional financial assets since these are regulated by other existing laws. In simplified form, cryptocurrencies are a form of digital money. These digital currencies can be used to buy goods and services online, invest or trade, but they exist only in electronic form. Examples of these Virtual Assets include: cryptocurrencies, gaming tokens, Non-Fungible Tokens and Government Tokens 

The Bill goes ahead to define Non-Fungible Tokens (NFTs) as unique identifiers that are recorded on a blockchain and are used to certify ownership and authenticity. NFTs are digital assets that represent items such as art, music, videos, and in-game objects. The term "non-fungible" means that these assets cannot be exchanged on a one-to-one basis because each is unique and carries a different value. What makes NFTs unique is their ability to prove ownership or authenticity of a specific item or content, ensuring that no two NFTs are alike. The main difference between cryptocurrencies and NFTs is that while cryptocurrencies can be traded interchangeably, the same doesn’t apply to NFTs since each one is unique. Instead, NFTs are bought using cryptocurrencies. For example, one Bitcoin has the same value and utility as any other Bitcoin, making it "fungible." For NFTs, owning a piece of digital art means you hold a specific token representing that particular piece of art, and its value depends on its uniqueness and demand. You cannot trade it on a one-to-one basis for another NFT, as they are all distinct. 

A Virtual Asset Service Provider (VASP) refers to either a local company registered under the Companies Act or a foreign company issued with a Certificate of Compliance under the same Act. These providers engage in one or more of the following activities, including custodial wallet services, virtual asset transfer services, virtual asset conversion services, operation of trading, clearing, and settlement platforms, offering payment gateway services, virtual asset brokerage, investment advisory services for virtual assets, virtual asset management, facilitation of investments in initial virtual asset offerings using fiat currency or virtual assets, converting real assets into virtual assets, or holding virtual assets in trust on behalf of third parties until transaction obligations are fully met. 

It is important to highlight that the Bill permits only legal entities (corporations) to engage in virtual asset business in Kenya. Individuals (natural persons) are not authorized to engage in virtual asset business. The Bill also requires that the legal entity engaging in the virtual business must be managed by a board of directors consisting of at least two natural persons, as legal entities are not allowed to serve as directors. Additionally, no director is allowed to serve on more than one board. 

Licensing 

The Bill designates the Central Bank of Kenya (CBK), the Capital Markets Authority (CMA), and the Communications Authority (CA) as the key regulatory authorities. VASPs are required to obtain operating licenses from either CBK, CMA or CA, depending on the activities they engage in. Once the Bill is enacted into law, entities already offering virtual asset services must apply for a Virtual Asset license within six (6) months. During this period, they may continue their operations until their license application is either approved or denied.  An individual found operating a virtual asset business without a license will face a penalty of up to ten (10) million in fines, imprisonment for up to ten (10) years, or both. For a company, the fine could reach up to twenty (20) million. Licenses issued will be valid until December 31 of the year issued and are not transferable without regulatory approval. 

After obtaining a license, VASPs will have several responsibilities, including conducting business with honesty and fairness, implementing strong risk management, cybersecurity, and data protection systems, preparing annual audited financial statements, and ensuring consumer protection through transparency and effective dispute resolution mechanisms. VASPs must prioritize customer interests by maintaining adequate safeguards for virtual assets and ensuring fairness in their operations. The Bill also emphasizes the importance of financial literacy and public awareness regarding virtual assets. 

Other highlights 

To prevent misuse of virtual assets, the Bill grants regulatory authorities’ powers to among others: vet significant shareholders and senior officers of VASPs, conduct on-site and off-site inspections and enforce AML/CFT/CPF compliance through penalties and other measures. It is noteworthy that VASPs will be required to open and maintain a bank account in Kenya if they intend to carry business in or from Kenya. This requirement aims to enable the relevant regulatory authorities to conduct both on-site and off-site inspections to ensure compliance with AML/CFT/CPF preventive measures. To safeguard consumers, the Bill suggests that VASPs obtain insurance policies that align with the nature and scale of their virtual asset services. This will provide a remedy for consumers in the event of losses, as they can be compensated from the insurance funds held by the business. 

Conclusion 

The Virtual Asset Service Providers Bill, 2025, represents a significant step in Kenya’s journey toward embracing the digital economy. By providing a comprehensive regulatory framework, it seeks to foster innovation while safeguarding the financial system from associated risks. With effective implementation, Kenya is poised to become a regional leader in virtual asset regulation. 

How can we help? 

The Corporate and Commercial Business Unit at CM Advocates LLP is well versed in matters relating to business set-up advisory, Fintech and related regulations. Our expertise includes registration of companies and licensing, post-incorporation services, regulatory compliance, corporate governance, contract drafting and review.  

Should you have any questions on this or any other matter, please do not hesitate to contact commercial@cmadvocates.com,  Maureen Odongo at modongo@cmadvocates.com or Magdaline Njeru at  mnjeru@cmadvocates.com