If a Licensed Crypto Business Fails in Kenya: Statutory Management, Liquidation and Appeals Under the VASP Regulations

If a licensed crypto exchange or wallet provider in Kenya gets into trouble, what happens to the customers’ money and coins? The Virtual Asset Service Providers Regulations, 2026 (Legal Notice 134 of 2026) answer that question in two places most commentary has skipped: Part V on intervention and statutory management, and Part XV on liquidation and appeals. This article explains how VASP statutory management and liquidation are meant to work, who ranks where, and what the licensee can do if it disagrees with the regulator.

Step one: intervention in management

Under regulation 46(1), the relevant regulator, which is the Central Bank of Kenya or the Capital Markets Authority depending on the licence category, may intervene in a licensee’s management where the licensee fails to meet its obligations to customers, fails to meet its financial obligations to other licensees, fails to comply with a directive of the regulator, or fails to comply with the Act.

Regulation 46(2) lists what the regulator may then do. It may appoint a statutory manager under regulation 47, remove any officer or employee who caused or contributed to the contravention, restrict the licensee from offering new virtual asset services, and prohibit it from engaging new agents or direct it to end existing agency arrangements. This is an early-warning power, and it operates before a licence is revoked.

Step two: VASP statutory management

Regulation 47(1) provides that where the regulator suspends or revokes a licence under section 15 of the Act, it may, by notice in the Gazette, appoint a statutory manager to manage consumer assets for up to twelve months. Under regulation 47(2), the term can be extended for a further period of up to twelve months with the approval of a competent court. Regulation 46(2)(a) lets the regulator appoint a statutory manager “in accordance with regulation 47”, and regulation 47 is framed around suspension or revocation, so a regulator that wants a manager may need to suspend first. The Regulations do not spell that out.

The grounds for suspension, variation or revocation are in section 15(1) of the Act: failure to comply with an obligation under the Act, carrying on business in a way the licence does not permit, false or misleading information, fraudulent or misleading marketing, or a threat to the interests of clients or potential clients. Under section 15(2) the regulator must first give the licensee written notice of its grounds. Section 15 also lets the regulator vary a licence by adding or removing conditions and by extending or reducing its permitted activities.

What a statutory manager does

Under regulation 48(1), the manager’s functions include taking control of the licensee’s assets to safeguard the money and virtual assets belonging to customers, and overseeing the settlement of those assets. The manager may declare a moratorium to protect customer assets (regulation 48(2)). It must be applied equally to all classes of creditors, although the manager may set off what the licensee owes a creditor against what that creditor owes the licensee (regulation 48(3)).

The manager’s powers in regulation 48(4) are wide. They include entering the licensee’s premises and taking possession of assets; selling assets that are subject to a security interest to a person who takes over the secured obligation; selling the assets and business by private treaty or public sale; arranging for someone to assume the liabilities; carrying on the business; suing and settling claims in the licensee’s name; and recovering the manager’s own costs, charges and expenses, including remuneration, out of the licensee’s assets in priority to all other claims. Regulation 48(5) provides that using these powers does not make the manager liable for the licensee’s obligations on its own account.

Liquidation: voluntary and involuntary

Regulation 149 deals with voluntary liquidation. Subject to the Insolvency Act, a licensee that cannot meet all its liabilities may liquidate itself with the regulator’s approval, and the regulator may approve the application if satisfied as to the insolvency of the licensee. Once approved, the licensee must immediately stop all operations except those incidental to the orderly realisation, conservation and preservation of its assets and the settlement of its obligations.

The ranking rule matters most to customers. Under regulation 149(5), a licensee that holds consumer funds must discharge its liability to consumers as soon as practicable after the liquidation starts, and only then ranks all other creditors in accordance with the Insolvency Act. Regulation 150 allows the regulator to apply to court for the liquidation of a licensee under Part VI of the Insolvency Act. Where someone else presents a petition, they must serve the regulator, which is entitled to be a party.

On our reading, regulation 149(5) addresses voluntary liquidation. We did not find in regulations 46 to 48, 149 or 150 a statement of how customers rank in an involuntary liquidation, or whether customer assets are excluded from the licensee’s own estate. That is why the segregation rules for custody matter so much in practice. See our guide to custody obligations for wallet providers. For the wider Kenyan liquidation framework, see our guide on what happens to employees and creditors when a company is wound up.

Appeals

Regulation 151 allows a person aggrieved by any decision of the regulator under the Regulations to appeal in accordance with section 43 of the Act. Section 43(1) covers refusal of a licence application, refusal of any other application or appointment, a decision to amend, revoke or suspend a licence or change a licence condition, and an enforcement action. The appeal lies to the “relevant body”, which section 43(3) defines as a court of law, a tribunal or a committee established by a written law of competent jurisdiction in Kenya. That body may confirm, vary or revoke the decision and make further orders (section 43(2)). The Act does not name the forum, and we have not found a designated tribunal, so an aggrieved licensee should identify the correct forum before the time for appeal runs. Neither the Act nor the Regulations, in the parts we read, fix a time limit or say whether an appeal suspends the decision.

What customers, investors and licensees should take from this

1. Customers: ask where your assets are held and whether they are recorded separately from the platform’s own assets. The Regulations protect customers most clearly in statutory management and voluntary liquidation.
2. Investors and lenders: treat the manager’s priority for its own costs, and the moratorium, as real constraints on recovery.
3. Licensees: keep customer records precise enough to hand a manager on day one, and diarise the grounds in section 15 as a compliance checklist.
4. Licensees facing a suspension notice: respond in writing within the period given under section 15(2), and take advice at once on the appeal route in section 43.