Cryptocurrency and digital asset regulation in Kenya sits at the intersection of the Central Bank of Kenya’s (CBK) currency and payment systems oversight, the Capital Markets Authority’s (CMA) securities regulation, and emerging policy initiatives by the National Treasury. Kenya has been cautious in its approach to cryptocurrency, with the CBK issuing several caution notices to the public about the risks of virtual currencies while the CMA has moved to bring certain digital assets within the capital markets regulatory framework. As a result, the regulatory position in Kenya is evolving and businesses operating in the digital assets space must monitor regulatory developments closely.

The CBK’s Position on Cryptocurrency

The CBK has historically taken a cautious stance on cryptocurrency, issuing public notices in 2015, 2018, and again in 2022 cautioning the public against using, holding, or trading in virtual currencies. The CBK’s position has been that virtual currencies are not legal tender in Kenya, are not regulated under the CBK Act or the National Payment System Act, and that persons dealing in virtual currencies do so at their own risk without CBK protection. Despite these cautions, the CBK has not enacted an outright ban on cryptocurrency ownership or trading by private individuals.

The position shifted notably with the passage of the Central Bank of Kenya (Amendment) Act 2021, which expanded the CBK’s mandate to include oversight of digital financial services and provided a legislative basis for regulating digital currencies, including potentially a Central Bank Digital Currency (CBDC). The CBK published a discussion paper on a CBDC for Kenya in 2023, signalling an increasingly structured approach to digital currencies.

CMA Regulation of Digital Assets as Securities

The Capital Markets (Amendment) Act 2023 extended the CMA’s jurisdiction to cover digital securities, allowing securities to be issued, transferred, and held in digital or tokenised form. This brings security tokens within the CMA’s regulatory framework, meaning that any person issuing a token that constitutes a security (a share, bond, or collective investment scheme unit) must comply with CMA licensing and disclosure requirements. Utility tokens and purely payment tokens may fall outside the CMA’s securities regulatory scope, though the boundary is not always clear.

The CMA’s regulatory sandbox has been used by several digital asset innovators to test products under controlled conditions. A company seeking to offer a tokenised investment product in Kenya should first apply to the CMA sandbox before seeking a full CMA licence.

Cryptocurrency Exchanges and Payment Service Providers

Cryptocurrency exchanges operating in Kenya occupy an ambiguous regulatory space. They are not currently required to hold a CBK licence as payment service providers under the National Payment System Act unless they handle Kenyan shillings in a manner that constitutes a payment service. However, exchanges that enable fiat-to-crypto conversion may be caught by the National Payment System Act’s broad definition of payment service providers.

The Kenya Revenue Authority has clarified that gains from cryptocurrency trading are subject to capital gains tax or income tax depending on the trading pattern. The KRA’s domestic taxes department has issued guidance treating frequent cryptocurrency trading as a business activity subject to income tax.

AML and Know-Your-Customer Obligations

Cryptocurrency businesses operating in Kenya are subject to Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) obligations under POCAMLA 2009 whether or not they fall within a specific licensing category. The Financial Reporting Centre (FRC) has designated Virtual Asset Service Providers (VASPs) as reporting entities under Kenya’s AML framework, consistent with FATF Recommendation 15 on virtual assets. VASPs must maintain customer due diligence records, file suspicious transaction reports, and appoint a Money Laundering Reporting Officer.

The National Blockchain Policy and Future Regulation

Kenya’s National Blockchain Policy, published by the ICT Authority, provides a framework for government use of blockchain technology but also signals a direction for broader digital asset regulation. A number of government initiatives including land registry digitalisation, KRA tax receipts, and the NTSA vehicle registry are exploring blockchain applications. Comprehensive digital assets legislation for Kenya is expected to follow as the policy framework matures.

For legal advice on cryptocurrency and digital asset businesses in Kenya, including regulatory compliance, AML obligations, and CMA sandbox applications, our regulatory compliance practice and financial services team provide specialist advisory services. Technology businesses should also consult our technology and startups practice.